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

You may think that with a price-to-sales (or "P/S") ratio of 2.4x Emdoor Information CO.,LTD. (SZSE:001314) is a stock worth checking out, seeing as almost half of all the Tech companies in China have P/S ratios greater than 4.1x and even P/S higher than 9x 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 reduced P/S.

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Check out our latest analysis for Emdoor InformationLTD

What Does Emdoor InformationLTD's Recent Performance Look Like?

Recent times have been advantageous for Emdoor InformationLTD as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Emdoor InformationLTD's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Emdoor InformationLTD's Revenue Growth Trending?

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.

Looking ahead now, revenue is anticipated to climb by 27% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 18% 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. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Emdoor InformationLTD'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 need to take note of risks, for example - Emdoor InformationLTD has 5 warning signs (and 2 which can't be ignored) we think you should know about.

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.