Market Still Lacking Some Conviction On Shenzhen Airport Co., Ltd. (SZSE:000089)

There wouldn't be many who think Shenzhen Airport Co., Ltd.'s (SZSE:000089) price-to-sales (or "P/S") ratio of 3.2x is worth a mention when the median P/S for the Infrastructure industry in China is similar at about 2.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shenzhen Airport

How Shenzhen Airport Has Been Performing

Recent times have been advantageous for Shenzhen Airport as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Shenzhen Airport's Revenue Growth Trending?

In order to justify its P/S ratio, Shenzhen Airport would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 12% as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 9.1% growth forecast for the broader industry.

In light of this, it's curious that Shenzhen Airport's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shenzhen Airport currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shenzhen Airport you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.