Songcheng Performance Development Co.,Ltd's (SZSE:300144) Price Is Out Of Tune With Revenues

With a price-to-sales (or "P/S") ratio of 7.9x Songcheng Performance Development Co.,Ltd (SZSE:300144) may be sending very bearish signals at the moment, given that almost half of all the Hospitality companies in China have P/S ratios under 4.3x and even P/S lower than 1.6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Songcheng Performance DevelopmentLtd

How Has Songcheng Performance DevelopmentLtd Performed Recently?

Recent times have been advantageous for Songcheng Performance DevelopmentLtd as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Songcheng Performance DevelopmentLtd.

How Is Songcheng Performance DevelopmentLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Songcheng Performance DevelopmentLtd 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 117%. The latest three year period has also seen an excellent 75% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 27%, which is noticeably more attractive.

In light of this, it's alarming that Songcheng Performance DevelopmentLtd's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Songcheng Performance DevelopmentLtd's P/S

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.

We've concluded that Songcheng Performance DevelopmentLtd currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Songcheng Performance DevelopmentLtd that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.