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Revenues Tell The Story For Lianlian DigiTech Co., Ltd. (HKG:2598) As Its Stock Soars 71%

Simply Wall St · 05/29 22:33

Lianlian DigiTech Co., Ltd. (HKG:2598) shareholders would be excited to see that the share price has had a great month, posting a 71% gain and recovering from prior weakness. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, when almost half of the companies in Hong Kong's Diversified Financial industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Lianlian DigiTech as a stock not worth researching with its 7.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Lianlian DigiTech

ps-multiple-vs-industry
SEHK:2598 Price to Sales Ratio vs Industry May 29th 2025

How Lianlian DigiTech Has Been Performing

Lianlian DigiTech certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Lianlian DigiTech's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Lianlian DigiTech's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Lianlian DigiTech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen an excellent 104% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 25% each year over the next three years. With the industry only predicted to deliver 13% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Lianlian DigiTech is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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What We Can Learn From Lianlian DigiTech's P/S?

The strong share price surge has lead to Lianlian DigiTech's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Lianlian DigiTech shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Lianlian DigiTech you should be aware of.

If you're unsure about the strength of Lianlian DigiTech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.