Why Investors Shouldn't Be Surprised By Guangzhou Jinyi Media Corporation's (SZSE:002905) Low P/S

Guangzhou Jinyi Media Corporation's (SZSE:002905) price-to-sales (or "P/S") ratio of 1.9x 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 5.2x and even P/S above 10x 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 so limited.

See our latest analysis for Guangzhou Jinyi Media

What Does Guangzhou Jinyi Media's Recent Performance Look Like?

The revenue growth achieved at Guangzhou Jinyi Media over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. 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 Guangzhou Jinyi Media will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Guangzhou Jinyi Media?

Guangzhou Jinyi Media's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 75% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Guangzhou Jinyi Media 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.

What We Can Learn From Guangzhou Jinyi Media's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Guangzhou Jinyi Media revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Guangzhou Jinyi Media (1 is concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Guangzhou Jinyi Media, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.