Investors Don't See Light At End Of Lisheng Sports (Shanghai) Co.,Ltd's (SZSE:002858) Tunnel

Lisheng Sports (Shanghai) Co.,Ltd's (SZSE:002858) price-to-sales (or "P/S") ratio of 4.5x might make it look like a buy right now compared to the Entertainment industry in China, where around half of the companies have P/S ratios above 5.6x and even P/S above 11x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Lisheng Sports (Shanghai)Ltd

How Lisheng Sports (Shanghai)Ltd Has Been Performing

With revenue growth that's exceedingly strong of late, Lisheng Sports (Shanghai)Ltd has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If you 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lisheng Sports (Shanghai)Ltd will help you shine a light on its historical performance.

How Is Lisheng Sports (Shanghai)Ltd's Revenue Growth Trending?

Lisheng Sports (Shanghai)Ltd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Lisheng Sports (Shanghai)Ltd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Lisheng Sports (Shanghai)Ltd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Lisheng Sports (Shanghai)Ltd that you should be aware of.

If you're unsure about the strength of Lisheng Sports (Shanghai)Ltd'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.