Stock Analysis

There's Reason For Concern Over Guangxi Wuzhou Zhongheng Group Co.,Ltd's (SHSE:600252) Massive 26% Price Jump

SHSE:600252
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Guangxi Wuzhou Zhongheng Group Co.,Ltd (SHSE:600252) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Guangxi Wuzhou Zhongheng GroupLtd's price-to-sales (or "P/S") ratio of 3.6x is worth a mention when it essentially matches the median P/S in China's Pharmaceuticals industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Guangxi Wuzhou Zhongheng GroupLtd

ps-multiple-vs-industry
SHSE:600252 Price to Sales Ratio vs Industry November 5th 2024

How Has Guangxi Wuzhou Zhongheng GroupLtd Performed Recently?

As an illustration, revenue has deteriorated at Guangxi Wuzhou Zhongheng GroupLtd over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Guangxi Wuzhou Zhongheng GroupLtd's earnings, revenue and cash flow.

How Is Guangxi Wuzhou Zhongheng GroupLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Guangxi Wuzhou Zhongheng GroupLtd would need to produce growth that's similar to 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 4.4%. As a result, revenue from three years ago have also fallen 16% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 225% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Guangxi Wuzhou Zhongheng GroupLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Guangxi Wuzhou Zhongheng GroupLtd's P/S

Its shares have lifted substantially and now Guangxi Wuzhou Zhongheng GroupLtd's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We find it unexpected that Guangxi Wuzhou Zhongheng GroupLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You always need to take note of risks, for example - Guangxi Wuzhou Zhongheng GroupLtd has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Guangxi Wuzhou Zhongheng GroupLtd'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.