Beijing Kaiwen Education Technology Co., Ltd's (SZSE:002659) P/S Is On The Mark

When close to half the companies in the Consumer Services industry in China have price-to-sales ratios (or "P/S") below 3.5x, you may consider Beijing Kaiwen Education Technology Co., Ltd (SZSE:002659) as a stock to avoid entirely with its 9.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing Kaiwen Education Technology

How Has Beijing Kaiwen Education Technology Performed Recently?

Beijing Kaiwen Education Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Beijing Kaiwen Education Technology?

In order to justify its P/S ratio, Beijing Kaiwen Education Technology would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 85%. Still, revenue has fallen 68% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 42% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Beijing Kaiwen Education Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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.

As we suspected, our examination of Beijing Kaiwen Education Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Beijing Kaiwen Education Technology with six simple checks.

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.