Stock Analysis

Optimistic Investors Push Shanghai Trendzone Holdings Group Co.,Ltd (SHSE:603030) Shares Up 38% But Growth Is Lacking

SHSE:603030
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Despite an already strong run, Shanghai Trendzone Holdings Group Co.,Ltd (SHSE:603030) shares have been powering on, with a gain of 38% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.0% in the last twelve months.

Since its price has surged higher, Shanghai Trendzone Holdings GroupLtd may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 4.9x, when you consider almost half of the companies in the Professional Services industry in China have P/S ratios under 4x and even P/S lower than 1.8x 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 elevated P/S.

View our latest analysis for Shanghai Trendzone Holdings GroupLtd

ps-multiple-vs-industry
SHSE:603030 Price to Sales Ratio vs Industry November 6th 2024

How Has Shanghai Trendzone Holdings GroupLtd Performed Recently?

For instance, Shanghai Trendzone Holdings GroupLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Shanghai Trendzone Holdings GroupLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Shanghai Trendzone Holdings GroupLtd would need to produce impressive growth in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 40%. This means it has also seen a slide in revenue over the longer-term as revenue is down 82% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 30% shows it's an unpleasant look.

In light of this, it's alarming that Shanghai Trendzone Holdings GroupLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Shanghai Trendzone Holdings GroupLtd's P/S Mean For Investors?

Shanghai Trendzone Holdings GroupLtd's P/S is on the rise since its shares have risen strongly. 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 Shanghai Trendzone Holdings GroupLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shanghai Trendzone Holdings GroupLtd you should be aware of.

If you're unsure about the strength of Shanghai Trendzone Holdings GroupLtd'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.