Why Investors Shouldn't Be Surprised By Star Shine Holdings Group Limited's (HKG:1440) 25% Share Price Surge

Star Shine Holdings Group Limited (HKG:1440) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

After such a large jump in price, you could be forgiven for thinking Star Shine Holdings Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 16.3x, considering almost half the companies in Hong Kong's Luxury industry have P/S ratios below 0.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Star Shine Holdings Group

What Does Star Shine Holdings Group's P/S Mean For Shareholders?

Revenue has risen firmly for Star Shine Holdings Group recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Star Shine Holdings Group will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

Star Shine Holdings Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. This was backed up an excellent period prior to see revenue up by 267% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 19% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why Star Shine Holdings Group's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Bottom Line On Star Shine Holdings Group's P/S

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

We've established that Star Shine Holdings Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Having said that, be aware Star Shine Holdings Group is showing 1 warning sign in our investment analysis, you should know about.

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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.