Shanghai Xinnanyang Only Education & Technology Co.,Ltd's (SHSE:600661) 26% Dip In Price Shows Sentiment Is Matching Revenues

The Shanghai Xinnanyang Only Education & Technology Co.,Ltd (SHSE:600661) share price has fared very poorly over the last month, falling by a substantial 26%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 7.1% over the last twelve months.

After such a large drop in price, Shanghai Xinnanyang Only Education & TechnologyLtd's price-to-sales (or "P/S") ratio of 2.3x might make it look like a buy right now compared to the Consumer Services industry in China, where around half of the companies have P/S ratios above 4.5x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Shanghai Xinnanyang Only Education & TechnologyLtd

What Does Shanghai Xinnanyang Only Education & TechnologyLtd's P/S Mean For Shareholders?

Recent times have been pleasing for Shanghai Xinnanyang Only Education & TechnologyLtd as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Xinnanyang Only Education & TechnologyLtd.

Is There Any Revenue Growth Forecasted For Shanghai Xinnanyang Only Education & TechnologyLtd?

In order to justify its P/S ratio, Shanghai Xinnanyang Only Education & TechnologyLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 32% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 33%, which is noticeably more attractive.

With this in consideration, its clear as to why Shanghai Xinnanyang Only Education & TechnologyLtd's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shanghai Xinnanyang Only Education & TechnologyLtd's P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Shanghai Xinnanyang Only Education & TechnologyLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Shanghai Xinnanyang Only Education & TechnologyLtd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.