Cautious Investors Not Rewarding Beijing Zhong Ke San Huan High-Tech Co., Ltd.'s (SZSE:000970) Performance Completely

With a price-to-sales (or "P/S") ratio of 1.4x Beijing Zhong Ke San Huan High-Tech Co., Ltd. (SZSE:000970) may be sending bullish signals at the moment, given that almost half of all the Electronic companies in China have P/S ratios greater than 3.3x and even P/S higher than 6x 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.

View our latest analysis for Beijing Zhong Ke San Huan High-Tech

What Does Beijing Zhong Ke San Huan High-Tech's Recent Performance Look Like?

Beijing Zhong Ke San Huan High-Tech 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Beijing Zhong Ke San Huan High-Tech will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Beijing Zhong Ke San Huan High-Tech?

The only time you'd be truly comfortable seeing a P/S as low as Beijing Zhong Ke San Huan High-Tech's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 27% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 31% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this information, we find it odd that Beijing Zhong Ke San Huan High-Tech is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

A look at Beijing Zhong Ke San Huan High-Tech's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant 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 should always think about risks. Case in point, we've spotted 2 warning signs for Beijing Zhong Ke San Huan High-Tech 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.