Guangdong Brandmax Marketing Co.,Ltd. (SZSE:300805) Shares Fly 28% But Investors Aren't Buying For Growth

Guangdong Brandmax Marketing Co.,Ltd. (SZSE:300805) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.1% in the last twelve months.

Although its price has surged higher, Guangdong Brandmax MarketingLtd's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a buy right now compared to the Media industry in China, where around half of the companies have P/S ratios above 2x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Guangdong Brandmax MarketingLtd

How Guangdong Brandmax MarketingLtd Has Been Performing

It looks like revenue growth has deserted Guangdong Brandmax MarketingLtd recently, which is not something to boast about. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely 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 Guangdong Brandmax MarketingLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 37% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 11% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Guangdong Brandmax MarketingLtd is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

The latest share price surge wasn't enough to lift Guangdong Brandmax MarketingLtd's P/S close to the industry median. 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 examination of Guangdong Brandmax MarketingLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Guangdong Brandmax MarketingLtd (including 1 which is a bit concerning).

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.

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