Investors Give Shenzhen Overseas Chinese Town Co.,Ltd. (SZSE:000069) Shares A 29% Hiding

The Shenzhen Overseas Chinese Town Co.,Ltd. (SZSE:000069) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.

Following the heavy fall in price, Shenzhen Overseas Chinese TownLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Real Estate industry in China have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Shenzhen Overseas Chinese TownLtd

How Shenzhen Overseas Chinese TownLtd Has Been Performing

While the industry has experienced revenue growth lately, Shenzhen Overseas Chinese TownLtd's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Overseas Chinese TownLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Shenzhen Overseas Chinese TownLtd?

In order to justify its P/S ratio, Shenzhen Overseas Chinese TownLtd would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 25%. The last three years don't look nice either as the company has shrunk revenue by 31% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 13% as estimated by the five analysts watching the company. With the industry only predicted to deliver 4.9%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Shenzhen Overseas Chinese TownLtd's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Shenzhen Overseas Chinese TownLtd's recently weak share price has pulled its P/S back below other Real Estate companies. 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.

Shenzhen Overseas Chinese TownLtd's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You always need to take note of risks, for example - Shenzhen Overseas Chinese TownLtd has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com