Subdued Growth No Barrier To Beijing Gehua Catv Network Co.,Ltd.'s (SHSE:600037) Price

You may think that with a price-to-sales (or "P/S") ratio of 4.4x Beijing Gehua Catv Network Co.,Ltd. (SHSE:600037) is a stock to potentially avoid, seeing as almost half of all the Media companies in China have P/S ratios under 3.6x and even P/S lower than 1.6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Beijing Gehua Catv NetworkLtd

What Does Beijing Gehua Catv NetworkLtd's Recent Performance Look Like?

Beijing Gehua Catv NetworkLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely 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 Beijing Gehua Catv NetworkLtd.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Beijing Gehua Catv NetworkLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.1% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 7.0% over the next year. Meanwhile, the rest of the industry is forecast to expand by 11%, which is noticeably more attractive.

With this information, we find it concerning that Beijing Gehua Catv NetworkLtd is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

What Does Beijing Gehua Catv NetworkLtd's P/S Mean For Investors?

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.

We've concluded that Beijing Gehua Catv NetworkLtd currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

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 Gehua Catv NetworkLtd with six simple checks.

If you're unsure about the strength of Beijing Gehua Catv NetworkLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.