The Price Is Right For Shenzhen China Bicycle Company (Holdings) Limited (SZSE:000017)

When you see that almost half of the companies in the Luxury industry in China have price-to-sales ratios (or "P/S") below 1.3x, Shenzhen China Bicycle Company (Holdings) Limited (SZSE:000017) looks to be giving off strong sell signals with its 8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Shenzhen China Bicycle Company (Holdings)

How Shenzhen China Bicycle Company (Holdings) Has Been Performing

For instance, Shenzhen China Bicycle Company (Holdings)'s receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen China Bicycle Company (Holdings) will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

Shenzhen China Bicycle Company (Holdings)'s P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. Even so, admirably revenue has lifted 278% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Shenzhen China Bicycle Company (Holdings) is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Shenzhen China Bicycle Company (Holdings)'s P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Shenzhen China Bicycle Company (Holdings) can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shenzhen China Bicycle Company (Holdings) with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.