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华尔街日报Why Investors Shouldn't Be Surprised By ITC Properties Group Limited's (HKG:199) 27% Share Price Surge
Despite an already strong run, ITC Properties Group Limited (HKG:199) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days were the cherry on top of the stock's 402% gain in the last year, which is nothing short of spectacular.
After such a large jump in price, when almost half of the companies in Hong Kong's Real Estate industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider ITC Properties Group as a stock probably not worth researching with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
Check out our latest analysis for ITC Properties Group
How ITC Properties Group Has Been Performing
With revenue growth that's exceedingly strong of late, ITC Properties Group has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for ITC Properties Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Enough Revenue Growth Forecasted For ITC Properties Group?
There's an inherent assumption that a company should outperform the industry for P/S ratios like ITC Properties Group's to be considered reasonable.
Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to grow revenue by 218% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
When compared to the industry's one-year growth forecast of 5.4%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's understandable that ITC Properties Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Key Takeaway
The large bounce in ITC Properties Group's shares has lifted the company's P/S handsomely. 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 suspected, our examination of ITC Properties Group revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 2 warning signs for ITC Properties Group you should know about.
If you're unsure about the strength of ITC Properties 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.