Lacklustre Performance Is Driving Rastar Group's (SZSE:300043) Low P/S

Rastar Group's (SZSE:300043) price-to-sales (or "P/S") ratio of 1.6x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Leisure industry in China have P/S ratios greater than 2.8x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Rastar Group

What Does Rastar Group's Recent Performance Look Like?

Rastar Group has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Rastar Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Rastar Group will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Rastar Group?

The only time you'd be truly comfortable seeing a P/S as low as Rastar Group's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10.0% last year. The solid recent performance means it was also able to grow revenue by 5.4% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Rastar Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

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.

In line with expectations, Rastar Group maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Rastar Group (2 can't be ignored) you should be aware of.

If you're unsure about the strength of Rastar Group'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.