Bright Real Estate Group Co.,Limited's (SHSE:600708) Price Is Right But Growth Is Lacking After Shares Rocket 40%

The Bright Real Estate Group Co.,Limited (SHSE:600708) share price has done very well over the last month, posting an excellent gain of 40%. Unfortunately, despite the strong performance over the last month, the full year gain of 9.5% isn't as attractive.

Although its price has surged higher, Bright Real Estate GroupLimited's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Real Estate industry in China, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Bright Real Estate GroupLimited

How Bright Real Estate GroupLimited Has Been Performing

For example, consider that Bright Real Estate GroupLimited's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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.

Although there are no analyst estimates available for Bright Real Estate GroupLimited, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Bright Real Estate GroupLimited's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Bright Real Estate GroupLimited's to be considered reasonable.

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 48%. The last three years don't look nice either as the company has shrunk revenue by 67% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

With this in mind, we understand why Bright Real Estate GroupLimited's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Bright Real Estate GroupLimited's P/S close to 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.

As we suspected, our examination of Bright Real Estate GroupLimited revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Bright Real Estate GroupLimited (2 are significant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Bright Real Estate GroupLimited, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.