Vobile Group Limited's (HKG:3738) P/S Is Still On The Mark Following 32% Share Price Bounce

Vobile Group Limited (HKG:3738) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The last month tops off a massive increase of 121% in the last year.

Following the firm bounce in price, given around half the companies in Hong Kong's Software industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Vobile Group as a stock to avoid entirely with its 4.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Vobile Group

How Vobile Group Has Been Performing

Recent times have been advantageous for Vobile Group as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Vobile Group?

In order to justify its P/S ratio, Vobile Group would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 25% over the next year. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Vobile Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Vobile Group's P/S?

The strong share price surge has lead to Vobile Group's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Vobile Group shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Vobile Group (1 is potentially serious!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.