Lacklustre Performance Is Driving Zhejiang Century Huatong Group Co.,Ltd's (SZSE:002602) Low P/S

Zhejiang Century Huatong Group Co.,Ltd's (SZSE:002602) price-to-sales (or "P/S") ratio of 2.9x might make it look like a strong buy right now compared to the Entertainment industry in China, where around half of the companies have P/S ratios above 6.5x and even P/S above 12x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Zhejiang Century Huatong GroupLtd

How Zhejiang Century Huatong GroupLtd Has Been Performing

Zhejiang Century Huatong GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Century Huatong GroupLtd.

How Is Zhejiang Century Huatong GroupLtd's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.3%. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 35%, which is noticeably more attractive.

With this in consideration, its clear as to why Zhejiang Century Huatong GroupLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As we suspected, our examination of Zhejiang Century Huatong GroupLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Zhejiang Century Huatong GroupLtd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.