Xi'an Qujiang Cultural Tourism Co., Ltd.'s (SHSE:600706) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Xi'an Qujiang Cultural Tourism Co., Ltd. (SHSE:600706) shares have continued their recent momentum with a 29% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

Even after such a large jump in price, when around half the companies operating in China's Hospitality industry have price-to-sales ratios (or "P/S") above 6.3x, you may still consider Xi'an Qujiang Cultural Tourism as an incredibly enticing stock to check out with its 2.3x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Xi'an Qujiang Cultural Tourism

What Does Xi'an Qujiang Cultural Tourism's P/S Mean For Shareholders?

Revenue has risen firmly for Xi'an Qujiang Cultural Tourism recently, which is pleasing to see. 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. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Xi'an Qujiang Cultural Tourism will help you shine a light on its historical performance.

How Is Xi'an Qujiang Cultural Tourism's Revenue Growth Trending?

Xi'an Qujiang Cultural Tourism's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. The latest three year period has also seen a 6.0% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 35% shows it's noticeably less attractive.

In light of this, it's understandable that Xi'an Qujiang Cultural Tourism'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

Shares in Xi'an Qujiang Cultural Tourism have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of Xi'an Qujiang Cultural Tourism revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Xi'an Qujiang Cultural Tourism.

If you're unsure about the strength of Xi'an Qujiang Cultural Tourism'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.