Hangzhou Shunwang Technology Co,Ltd's (SZSE:300113) Shareholders Might Be Looking For Exit

With a median price-to-sales (or "P/S") ratio of close to 6.2x in the Entertainment industry in China, you could be forgiven for feeling indifferent about Hangzhou Shunwang Technology Co,Ltd's (SZSE:300113) P/S ratio of 6.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hangzhou Shunwang Technology CoLtd

What Does Hangzhou Shunwang Technology CoLtd's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Hangzhou Shunwang Technology CoLtd has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 not quite in favour.

Keen to find out how analysts think Hangzhou Shunwang Technology CoLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hangzhou Shunwang Technology CoLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hangzhou Shunwang Technology CoLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Pleasingly, revenue has also lifted 53% 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.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is noticeably more attractive.

With this information, we find it interesting that Hangzhou Shunwang Technology CoLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Hangzhou Shunwang Technology CoLtd's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at the analysts forecasts of Hangzhou Shunwang Technology CoLtd's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Hangzhou Shunwang Technology CoLtd with six simple checks.

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

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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.