Hytera Communications Corporation Limited's (SZSE:002583) Price Is Right But Growth Is Lacking

You may think that with a price-to-sales (or "P/S") ratio of 1.2x Hytera Communications Corporation Limited (SZSE:002583) is definitely a stock worth checking out, seeing as almost half of all the Communications companies in China have P/S ratios greater than 3.9x and even P/S above 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hytera Communications

How Hytera Communications Has Been Performing

Recent revenue growth for Hytera Communications has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Hytera Communications?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Hytera Communications' to be considered reasonable.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 11% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 12% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 48% growth forecast for the broader industry.

With this in consideration, its clear as to why Hytera Communications' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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.

As we suspected, our examination of Hytera Communications' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Hytera Communications with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Hytera Communications' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com