The Market Doesn't Like What It Sees From China Vanke Co., Ltd.'s (SZSE:000002) Revenues Yet

You may think that with a price-to-sales (or "P/S") ratio of 0.2x China Vanke Co., Ltd. (SZSE:000002) is a stock worth checking out, seeing as almost half of all the Real Estate companies in China have P/S ratios greater than 2.2x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for China Vanke

What Does China Vanke's P/S Mean For Shareholders?

China Vanke has been struggling lately as its revenue has declined faster than most other companies. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Vanke.

How Is China Vanke's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as China Vanke's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. As a result, revenue from three years ago have also fallen 12% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 23% over the next year. With the industry predicted to deliver 10% growth, that's a disappointing outcome.

In light of this, it's understandable that China Vanke's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

It's clear to see that China Vanke maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for China Vanke that you should be aware of.

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.