Why Investors Shouldn't Be Surprised By Sam Woo Construction Group Limited's (HKG:3822) P/S

Simply Wall St · 10/16 00:30

There wouldn't be many who think Sam Woo Construction Group Limited's (HKG:3822) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Construction industry in Hong Kong is similar at about 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Sam Woo Construction Group

ps-multiple-vs-industry
SEHK:3822 Price to Sales Ratio vs Industry October 16th 2024

How Has Sam Woo Construction Group Performed Recently?

Revenue has risen firmly for Sam Woo Construction Group recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Sam Woo Construction Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Sam Woo Construction Group's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 9.8% gain to the company's revenues. The latest three year period has also seen a 29% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 10% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Sam Woo Construction Group is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we've seen, Sam Woo Construction Group's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 2 warning signs for Sam Woo Construction Group (1 is concerning!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.