Investors Holding Back On Zhejiang Dafeng Industry Co., Ltd (SHSE:603081)

There wouldn't be many who think Zhejiang Dafeng Industry Co., Ltd's (SHSE:603081) price-to-sales (or "P/S") ratio of 3.6x is worth a mention when the median P/S for the Commercial Services industry in China is similar at about 3.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Zhejiang Dafeng Industry

How Has Zhejiang Dafeng Industry Performed Recently?

Zhejiang Dafeng Industry could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Zhejiang Dafeng Industry's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Zhejiang Dafeng Industry's Revenue Growth Trending?

Zhejiang Dafeng Industry's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 49% 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.

Looking ahead now, revenue is anticipated to climb by 82% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 35% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Zhejiang Dafeng Industry's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Zhejiang Dafeng Industry's P/S Mean For Investors?

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.

Looking at Zhejiang Dafeng Industry's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Zhejiang Dafeng Industry (1 can't be ignored!) 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.