China Film Co., Ltd.'s (SHSE:600977) Popularity With Investors Is Clear

It's not a stretch to say that China Film Co., Ltd.'s (SHSE:600977) price-to-sales (or "P/S") ratio of 4.9x right now seems quite "middle-of-the-road" for companies in the Entertainment industry in China, where the median P/S ratio is around 5.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for China Film

How Has China Film Performed Recently?

With revenue growth that's inferior to most other companies of late, China Film has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on China Film will help you uncover what's on the horizon.

How Is China Film's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like China Film's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.0% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 16% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 27% over the next year. With the industry predicted to deliver 28% growth , the company is positioned for a comparable revenue result.

With this information, we can see why China Film is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at China Film's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for China Film that you should be aware of.

If you're unsure about the strength of China Film'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.