With Guangzhou Goaland Energy Conservation Tech. Co., Ltd. (SZSE:300499) It Looks Like You'll Get What You Pay For

When you see that almost half of the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 2.6x, Guangzhou Goaland Energy Conservation Tech. Co., Ltd. (SZSE:300499) looks to be giving off strong sell signals with its 5.7x 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.

View our latest analysis for Guangzhou Goaland Energy Conservation Tech

How Guangzhou Goaland Energy Conservation Tech Has Been Performing

Guangzhou Goaland Energy Conservation Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 Guangzhou Goaland Energy Conservation Tech will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Guangzhou Goaland Energy Conservation Tech would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 55%. This means it has also seen a slide in revenue over the longer-term as revenue is down 56% in total over the last three years. 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 59% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Guangzhou Goaland Energy Conservation Tech's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Guangzhou Goaland Energy Conservation Tech's P/S

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 look into Guangzhou Goaland Energy Conservation Tech 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Guangzhou Goaland Energy Conservation Tech that you should be aware of.

If you're unsure about the strength of Guangzhou Goaland Energy Conservation Tech'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.