Doushen (Beijing) Education & Technology INC. (SZSE:300010) Looks Inexpensive But Perhaps Not Attractive Enough

With a price-to-sales (or "P/S") ratio of 4.2x Doushen (Beijing) Education & Technology INC. (SZSE:300010) may be sending bullish signals at the moment, given that almost half of all the Software companies in China have P/S ratios greater than 5.3x and even P/S higher than 9x 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 Doushen (Beijing) Education & Technology

How Doushen (Beijing) Education & Technology Has Been Performing

For example, consider that Doushen (Beijing) Education & Technology's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you 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.

Although there are no analyst estimates available for Doushen (Beijing) Education & Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Doushen (Beijing) Education & Technology would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 1.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 32% 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.

In contrast to the company, the rest of the industry is expected to grow by 33% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Doushen (Beijing) Education & Technology is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Doushen (Beijing) Education & Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Doushen (Beijing) Education & Technology 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.