Why Investors Shouldn't Be Surprised By Shanghai Titan Scientific Co., Ltd.'s (SHSE:688133) 25% Share Price Plunge
Shanghai Titan Scientific Co., Ltd. (SHSE:688133) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.
In spite of the heavy fall in price, it would still be understandable if you think Shanghai Titan Scientific is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1x, considering almost half the companies in China's Chemicals industry have P/S ratios above 2.2x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Shanghai Titan Scientific
What Does Shanghai Titan Scientific's Recent Performance Look Like?
Recent times have been advantageous for Shanghai Titan Scientific as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Titan Scientific.Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Shanghai Titan Scientific would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 4.6% last year. The latest three year period has also seen an excellent 43% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 18% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 25% growth forecast for the broader industry.
With this information, we can see why Shanghai Titan Scientific is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Shanghai Titan Scientific's P/S
Shanghai Titan Scientific's P/S has taken a dip along with its share price. 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 Shanghai Titan Scientific's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 3 warning signs for Shanghai Titan Scientific that you need to take into consideration.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
About SHSE:688133
Shanghai Titan Scientific
Provides laboratory products and supporting services for scientific researchers and quality control personnel.
Good value with moderate growth potential.