Revenues Tell The Story For Shanghai Fengyuzhu Culture Technology Co., Ltd. (SHSE:603466) As Its Stock Soars 35%

Shanghai Fengyuzhu Culture Technology Co., Ltd. (SHSE:603466) shares have continued their recent momentum with a 35% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Following the firm bounce in price, given close to half the companies operating in China's Media industry have price-to-sales ratios (or "P/S") below 3.8x, you may consider Shanghai Fengyuzhu Culture Technology as a stock to potentially avoid with its 4.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shanghai Fengyuzhu Culture Technology

What Does Shanghai Fengyuzhu Culture Technology's Recent Performance Look Like?

Shanghai Fengyuzhu Culture Technology 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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Fengyuzhu Culture Technology will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Shanghai Fengyuzhu Culture Technology's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 49% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 37% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Shanghai Fengyuzhu Culture Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The large bounce in Shanghai Fengyuzhu Culture Technology's shares has lifted the company's P/S handsomely. 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 Fengyuzhu Culture Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Shanghai Fengyuzhu Culture Technology that you need to be mindful 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.