What Wangfujing Group Co., Ltd.'s (SHSE:600859) P/S Is Not Telling You

It's not a stretch to say that Wangfujing Group Co., Ltd.'s (SHSE:600859) price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" for companies in the Multiline Retail industry in China, where the median P/S ratio is around 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Wangfujing Group

What Does Wangfujing Group's P/S Mean For Shareholders?

There hasn't been much to differentiate Wangfujing Group's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

Want the full picture on analyst estimates for the company? Then our free report on Wangfujing Group will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Wangfujing Group would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 9.7% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 8.0% over the next year. That's shaping up to be materially lower than the 15% growth forecast for the broader industry.

With this in mind, we find it intriguing that Wangfujing Group's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Wangfujing Group's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that Wangfujing Group's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Wangfujing Group.

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.