Offcn Education Technology Co., Ltd.'s (SZSE:002607) 26% Cheaper Price Remains In Tune With Revenues

Offcn Education Technology Co., Ltd. (SZSE:002607) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.

Although its price has dipped substantially, Offcn Education Technology's price-to-sales (or "P/S") ratio of 7.4x might still make it look like a strong sell right now compared to other companies in the Consumer Services industry in China, where around half of the companies have P/S ratios below 4.3x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Offcn Education Technology

What Does Offcn Education Technology's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Offcn Education Technology has been very sluggish. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Offcn Education Technology will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Offcn Education Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Offcn Education Technology's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. As a result, revenue from three years ago have also fallen 75% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 40% as estimated by the dual analysts watching the company. With the industry only predicted to deliver 33%, the company is positioned for a stronger revenue result.

With this information, we can see why Offcn Education Technology is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Offcn Education Technology's P/S?

Even after such a strong price drop, Offcn Education Technology's P/S still exceeds the industry median significantly. 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.

We've established that Offcn Education Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Consumer Services industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Offcn Education Technology (1 is a bit concerning!) that you should be aware of.

If you're unsure about the strength of Offcn Education Technology'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.