Emdoor Information CO.,LTD. (SZSE:001314) Screens Well But There Might Be A Catch

Emdoor Information CO.,LTD.'s (SZSE:001314) price-to-sales (or "P/S") ratio of 2.4x might make it look like a buy right now compared to the Tech industry in China, where around half of the companies have P/S ratios above 3.6x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Emdoor InformationLTD

What Does Emdoor InformationLTD's Recent Performance Look Like?

There hasn't been much to differentiate Emdoor InformationLTD's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Emdoor InformationLTD.

Is There Any Revenue Growth Forecasted For Emdoor InformationLTD?

Emdoor InformationLTD's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Still, revenue has fallen 11% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 25% over the next year. That's shaping up to be materially higher than the 17% growth forecast for the broader industry.

In light of this, it's peculiar that Emdoor InformationLTD's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Emdoor InformationLTD's P/S

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.

To us, it seems Emdoor InformationLTD currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Emdoor InformationLTD you should be aware of, and 2 of them are concerning.

If you're unsure about the strength of Emdoor InformationLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.