- China
- /
- Real Estate
- /
- SHSE:600696
Market Participants Recognise Shanghai Guijiu Co.,Ltd's (SHSE:600696) Revenues Pushing Shares 37% Higher
Shanghai Guijiu Co.,Ltd (SHSE:600696) shares have continued their recent momentum with a 37% gain in the last month alone. But the last month did very little to improve the 54% share price decline over the last year.
Since its price has surged higher, given close to half the companies operating in China's Real Estate industry have price-to-sales ratios (or "P/S") below 2x, you may consider Shanghai GuijiuLtd as a stock to potentially avoid with its 3.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Shanghai GuijiuLtd
What Does Shanghai GuijiuLtd's Recent Performance Look Like?
As an illustration, revenue has deteriorated at Shanghai GuijiuLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.
Although there are no analyst estimates available for Shanghai GuijiuLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Enough Revenue Growth Forecasted For Shanghai GuijiuLtd?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Shanghai GuijiuLtd's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. Even so, admirably revenue has lifted 245% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 10% shows it's noticeably more attractive.
In light of this, it's understandable that Shanghai GuijiuLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Final Word
Shanghai GuijiuLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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've established that Shanghai GuijiuLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
It is also worth noting that we have found 1 warning sign for Shanghai GuijiuLtd that you need to take into consideration.
If you're unsure about the strength of Shanghai GuijiuLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SHSE:600696
Imperfect balance sheet very low.