Benign Growth For Ninestar Corporation (SZSE:002180) Underpins Its Share Price

With a price-to-sales (or "P/S") ratio of 1.4x Ninestar Corporation (SZSE:002180) may be sending very bullish signals at the moment, given that almost half of all the Tech companies in China have P/S ratios greater than 3.6x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Ninestar

What Does Ninestar's Recent Performance Look Like?

Recent times haven't been great for Ninestar as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ninestar will help you uncover what's on the horizon.

How Is Ninestar's Revenue Growth Trending?

In order to justify its P/S ratio, Ninestar would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 10% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 18% growth forecast for the broader industry.

In light of this, it's understandable that Ninestar'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.

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.

We've established that Ninestar maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Ninestar that you need to be mindful of.

If you're unsure about the strength of Ninestar'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.