Guangdong Create Century Intelligent Equipment Group Corporation Limited (SZSE:300083) Not Flying Under The Radar

When close to half the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 2.5x, you may consider Guangdong Create Century Intelligent Equipment Group Corporation Limited (SZSE:300083) as a stock to potentially avoid with its 3.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Guangdong Create Century Intelligent Equipment Group

How Guangdong Create Century Intelligent Equipment Group Has Been Performing

Guangdong Create Century Intelligent Equipment Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Guangdong Create Century Intelligent Equipment Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Guangdong Create Century Intelligent Equipment Group's Revenue Growth Trending?

In order to justify its P/S ratio, Guangdong Create Century Intelligent Equipment Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 20% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 54% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Guangdong Create Century Intelligent Equipment Group's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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 Guangdong Create Century Intelligent Equipment Group shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Guangdong Create Century Intelligent Equipment Group (including 1 which is significant).

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.

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