Market Might Still Lack Some Conviction On Petro-king Oilfield Services Limited (HKG:2178) Even After 28% Share Price Boost

Petro-king Oilfield Services Limited (HKG:2178) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 6.5% isn't as attractive.

Even after such a large jump in price, it's still not a stretch to say that Petro-king Oilfield Services' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Energy Services industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Petro-king Oilfield Services

What Does Petro-king Oilfield Services' P/S Mean For Shareholders?

Petro-king Oilfield Services has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

What Are Revenue Growth Metrics Telling Us About The P/S?

Petro-king Oilfield Services' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. Pleasingly, revenue has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Petro-king Oilfield Services is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now Petro-king Oilfield Services' P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We didn't quite envision Petro-king Oilfield Services' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Petro-king Oilfield Services (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Petro-king Oilfield Services' 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.