China Quanjude(Group) Co.,Ltd.'s (SZSE:002186) Share Price Is Matching Sentiment Around Its Revenues

China Quanjude(Group) Co.,Ltd.'s (SZSE:002186) price-to-sales (or "P/S") ratio of 2.4x may look like a very appealing investment opportunity when you consider close to half the companies in the Hospitality industry in China have P/S ratios greater than 5.6x. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for China Quanjude(Group)Ltd

How China Quanjude(Group)Ltd Has Been Performing

Recent times have been quite advantageous for China Quanjude(Group)Ltd as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For China Quanjude(Group)Ltd?

China Quanjude(Group)Ltd'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.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. The latest three year period has also seen an excellent 40% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 29% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why China Quanjude(Group)Ltd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of China Quanjude(Group)Ltd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of 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.

You always need to take note of risks, for example - China Quanjude(Group)Ltd has 1 warning sign we think you should be aware of.

If you're unsure about the strength of China Quanjude(Group)Ltd'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.