Shenzhen Changhong Technology Co., Ltd.'s (SZSE:300151) P/S Still Appears To Be Reasonable
When you see that almost half of the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 3.6x, Shenzhen Changhong Technology Co., Ltd. (SZSE:300151) looks to be giving off strong sell signals with its 9.1x 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 so lofty.
Check out our latest analysis for Shenzhen Changhong Technology
What Does Shenzhen Changhong Technology's P/S Mean For Shareholders?
Shenzhen Changhong Technology 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. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Changhong Technology will help you uncover what's on the horizon.Is There Enough Revenue Growth Forecasted For Shenzhen Changhong Technology?
Shenzhen Changhong Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.2%. As a result, revenue from three years ago have also fallen 17% overall. 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 27% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 22%, which is noticeably less attractive.
With this information, we can see why Shenzhen Changhong Technology is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What Does Shenzhen Changhong Technology's P/S Mean For Investors?
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.
Our look into Shenzhen Changhong Technology shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Shenzhen Changhong Technology (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.
If you're unsure about the strength of Shenzhen Changhong Technology'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.
About SZSE:300151
Shenzhen Changhong Technology
Engages in design, manufacture, and sale of plastic molds and precision injection molded parts in China and internationally.
High growth potential with excellent balance sheet.