Why Investors Shouldn't Be Surprised By OSL Group Limited's (HKG:863) 25% Share Price Surge

Despite an already strong run, OSL Group Limited (HKG:863) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 143% in the last year.

After such a large jump in price, OSL Group may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 35.4x, since almost half of all companies in the Capital Markets industry in Hong Kong have P/S ratios under 4.9x and even P/S lower than 2x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for OSL Group

How OSL Group Has Been Performing

With revenue growth that's inferior to most other companies of late, OSL Group has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on OSL Group.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 95% gain to the company's top line. The latest three year period has also seen an excellent 123% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 84% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this in mind, it's not hard to understand why OSL Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On OSL Group's P/S

OSL Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We've established that OSL Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Capital Markets industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for OSL Group (1 shouldn't be ignored) you should be aware of.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.