Glodon Company Limited's (SZSE:002410) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 3.3x Glodon Company Limited (SZSE:002410) is definitely a stock worth checking out, seeing as almost half of all the Software companies in China have P/S ratios greater than 6.9x and even P/S above 12x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Glodon

What Does Glodon's Recent Performance Look Like?

Glodon hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. 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 Glodon will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Glodon?

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

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 11%. Regardless, revenue has managed to lift by a handy 24% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 9.5% as estimated by the analysts watching the company. With the industry predicted to deliver 30% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Glodon's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Glodon's P/S?

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.

We've established that Glodon maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Glodon that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.