Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (SZSE:000029) Investors Are Less Pessimistic Than Expected

Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd.'s (SZSE:000029) price-to-sales (or "P/S") ratio of 24.3x may look like a poor investment opportunity when you consider close to half the companies in the Real Estate industry in China have P/S ratios below 1.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Shenzhen Special Economic Zone Real Estate & Properties (Group)

How Shenzhen Special Economic Zone Real Estate & Properties (Group) Has Been Performing

For example, consider that Shenzhen Special Economic Zone Real Estate & Properties (Group)'s financial performance has been poor lately as its revenue has been in decline. 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. 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 Shenzhen Special Economic Zone Real Estate & Properties (Group) will help you shine a light on its historical performance.

How Is Shenzhen Special Economic Zone Real Estate & Properties (Group)'s Revenue Growth Trending?

In order to justify its P/S ratio, Shenzhen Special Economic Zone Real Estate & Properties (Group) would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 47%. The last three years don't look nice either as the company has shrunk revenue by 75% in aggregate. 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 9.0% 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 Shenzhen Special Economic Zone Real Estate & Properties (Group)'s P/S sits above 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 very 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.

What Does Shenzhen Special Economic Zone Real Estate & Properties (Group)'s P/S Mean For Investors?

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 Shenzhen Special Economic Zone Real Estate & Properties (Group) currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Plus, you should also learn about this 1 warning sign we've spotted with Shenzhen Special Economic Zone Real Estate & Properties (Group).

If you're unsure about the strength of Shenzhen Special Economic Zone Real Estate & Properties (Group)'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.