Market Still Lacking Some Conviction On Guangshen Railway Company Limited (HKG:525)

There wouldn't be many who think Guangshen Railway Company Limited's (HKG:525) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Transportation industry in Hong Kong is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Guangshen Railway

How Guangshen Railway Has Been Performing

With revenue growth that's superior to most other companies of late, Guangshen Railway has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Guangshen Railway?

The only time you'd be comfortable seeing a P/S like Guangshen Railway's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The strong recent performance means it was also able to grow revenue by 40% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 13% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 9.2%, which is noticeably less attractive.

In light of this, it's curious that Guangshen Railway'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 Bottom Line On Guangshen Railway's P/S

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.

Looking at Guangshen Railway's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Guangshen Railway that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.