The Price Is Right For Songcheng Performance Development Co.,Ltd (SZSE:300144)

You may think that with a price-to-sales (or "P/S") ratio of 16.8x Songcheng Performance Development Co.,Ltd (SZSE:300144) is a stock to avoid completely, seeing as almost half of all the Hospitality companies in China have P/S ratios under 5.3x and even P/S lower than 2x aren't out of the ordinary. 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.

View our latest analysis for Songcheng Performance DevelopmentLtd

What Does Songcheng Performance DevelopmentLtd's Recent Performance Look Like?

Recent times have been advantageous for Songcheng Performance DevelopmentLtd as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 Songcheng Performance DevelopmentLtd will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Songcheng Performance DevelopmentLtd?

The only time you'd be truly comfortable seeing a P/S as steep as Songcheng Performance DevelopmentLtd's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 203% last year. The strong recent performance means it was also able to grow revenue by 65% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 53% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we can see why Songcheng Performance DevelopmentLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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.

As we suspected, our examination of Songcheng Performance DevelopmentLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Songcheng Performance DevelopmentLtd with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.