Guangdong Zhongnan Iron and Steel Co., Ltd.'s (SZSE:000717) Share Price Is Matching Sentiment Around Its Revenues

Guangdong Zhongnan Iron and Steel Co., Ltd.'s (SZSE:000717) price-to-sales (or "P/S") ratio of 0.1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Metals and Mining industry in China have P/S ratios greater than 1.3x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Guangdong Zhongnan Iron and Steel

What Does Guangdong Zhongnan Iron and Steel's P/S Mean For Shareholders?

Guangdong Zhongnan Iron and Steel certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Guangdong Zhongnan Iron and Steel's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Guangdong Zhongnan Iron and Steel?

Guangdong Zhongnan Iron and Steel's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 6.0% gain to the company's revenues. The latest three year period has also seen an excellent 39% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 5.7% over the next year. Meanwhile, the rest of the industry is forecast to expand by 15%, which is noticeably more attractive.

In light of this, it's understandable that Guangdong Zhongnan Iron and Steel's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Guangdong Zhongnan Iron and Steel maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Guangdong Zhongnan Iron and Steel that you should be aware of.

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).

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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.