Beijing Electronic Zone High-tech Group Co., Ltd.'s (SHSE:600658) 32% Price Boost Is Out Of Tune With Revenues

Beijing Electronic Zone High-tech Group Co., Ltd. (SHSE:600658) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Following the firm bounce in price, when almost half of the companies in China's Real Estate industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Beijing Electronic Zone High-tech Group as a stock probably not worth researching with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Beijing Electronic Zone High-tech Group

How Beijing Electronic Zone High-tech Group Has Been Performing

As an illustration, revenue has deteriorated at Beijing Electronic Zone High-tech Group over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Electronic Zone High-tech Group will help you shine a light on its historical performance.

How Is Beijing Electronic Zone High-tech Group's Revenue Growth Trending?

In order to justify its P/S ratio, Beijing Electronic Zone High-tech Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 38% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Beijing Electronic Zone High-tech Group's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Beijing Electronic Zone High-tech Group's P/S

The large bounce in Beijing Electronic Zone High-tech Group's shares has lifted the company's P/S handsomely. 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.

Our examination of Beijing Electronic Zone High-tech Group revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

You need to take note of risks, for example - Beijing Electronic Zone High-tech Group has 3 warning signs (and 2 which are significant) we think you should know about.

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.