Guangdong Advertising Group Co.,Ltd (SZSE:002400) Stock's 28% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Guangdong Advertising Group Co.,Ltd (SZSE:002400) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 53% in the last year.

In spite of the heavy fall in price, Guangdong Advertising GroupLtd's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a strong buy right now compared to the wider Media industry in China, where around half of the companies have P/S ratios above 3.2x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Guangdong Advertising GroupLtd

How Guangdong Advertising GroupLtd Has Been Performing

The revenue growth achieved at Guangdong Advertising GroupLtd over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Guangdong Advertising GroupLtd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Guangdong Advertising GroupLtd's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Guangdong Advertising GroupLtd's P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

What Does Guangdong Advertising GroupLtd's P/S Mean For Investors?

Guangdong Advertising GroupLtd's P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

The fact that Guangdong Advertising GroupLtd currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. While recent

Before you settle on your opinion, we've discovered 2 warning signs for Guangdong Advertising GroupLtd (1 makes us a bit uncomfortable!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.