Masterwork Group Co.,Ltd. (SZSE:300195) Shares Fly 43% But Investors Aren't Buying For Growth

Masterwork Group Co.,Ltd. (SZSE:300195) shareholders have had their patience rewarded with a 43% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.3% in the last twelve months.

In spite of the firm bounce in price, Masterwork GroupLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Masterwork GroupLtd

How Has Masterwork GroupLtd Performed Recently?

Masterwork GroupLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Masterwork GroupLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Masterwork GroupLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Masterwork GroupLtd's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Masterwork GroupLtd's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Masterwork GroupLtd's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Masterwork GroupLtd's P/S close to 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.

Our examination of Masterwork GroupLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Masterwork GroupLtd (1 is a bit unpleasant!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.