Guangzhou Frontop Digital Creative Technology Corporation (SZSE:301313) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

Guangzhou Frontop Digital Creative Technology Corporation (SZSE:301313) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Although its price has dipped substantially, you could still be forgiven for thinking Guangzhou Frontop Digital Creative Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.9x, considering almost half the companies in China's Media industry have P/S ratios below 2.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Guangzhou Frontop Digital Creative Technology

What Does Guangzhou Frontop Digital Creative Technology's Recent Performance Look Like?

Guangzhou Frontop Digital Creative Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangzhou Frontop Digital Creative Technology.

Is There Enough Revenue Growth Forecasted For Guangzhou Frontop Digital Creative Technology?

In order to justify its P/S ratio, Guangzhou Frontop Digital Creative Technology would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. The last three years don't look nice either as the company has shrunk revenue by 27% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 56% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 19% growth forecast for the broader industry.

In light of this, it's understandable that Guangzhou Frontop Digital Creative Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Guangzhou Frontop Digital Creative Technology's P/S?

Guangzhou Frontop Digital Creative Technology's shares may have suffered, but its P/S remains high. 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.

We've established that Guangzhou Frontop Digital Creative Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Guangzhou Frontop Digital Creative Technology (including 2 which are significant).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.