Shenzhen SED Industry Co., Ltd. (SZSE:000032) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies operating in the Construction industry in China have price-to-sales ratios (or "P/S") above 0.9x, you may consider Shenzhen SED Industry Co., Ltd. (SZSE:000032) as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shenzhen SED Industry

How Has Shenzhen SED Industry Performed Recently?

Shenzhen SED Industry certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Shenzhen SED Industry will help you uncover what's on the horizon.

How Is Shenzhen SED Industry's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shenzhen SED Industry's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Pleasingly, revenue has also lifted 83% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 9.9% as estimated by the two analysts watching the company. With the industry predicted to deliver 14% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Shenzhen SED Industry is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Shenzhen SED Industry's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shenzhen SED Industry you should be aware of.

If you're unsure about the strength of Shenzhen SED Industry'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com