Stock Analysis

Kailong High Technology Co., Ltd.'s (SZSE:300912) Revenues Are Not Doing Enough For Some Investors

SZSE:300912
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You may think that with a price-to-sales (or "P/S") ratio of 1.5x Kailong High Technology Co., Ltd. (SZSE:300912) is a stock worth checking out, seeing as almost half of all the Machinery companies in China have P/S ratios greater than 2.8x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Kailong High Technology

ps-multiple-vs-industry
SZSE:300912 Price to Sales Ratio vs Industry March 5th 2024

What Does Kailong High Technology's Recent Performance Look Like?

Recent times have been quite advantageous for Kailong High Technology as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Kailong High Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Kailong High Technology?

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

If we review the last year of revenue growth, the company posted a terrific increase of 56%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 19% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Kailong High Technology's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Kailong High Technology's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Kailong High Technology maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 3 warning signs for Kailong High Technology (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Kailong High Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're here to simplify it.

Discover if Kailong High Technology might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.