You may think that with a price-to-sales (or "P/S") ratio of 11.3x GL Tech Co.,Ltd (SZSE:300480) is a stock to avoid completely, seeing as almost half of all the Electronic companies in China have P/S ratios under 4.4x and even P/S lower than 2x 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 highly elevated P/S.
View our latest analysis for GL TechLtd
SZSE:300480 Price to Sales Ratio vs Industry December 19th 2023
How Has GL TechLtd Performed Recently?
Recent times have been advantageous for GL TechLtd as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on GL TechLtd.
Is There Enough Revenue Growth Forecasted For GL TechLtd?
The only time you'd be truly comfortable seeing a P/S as steep as GL TechLtd's is when the company's growth is on track to outshine the industry decidedly.
If we review the last year of revenue growth, the company posted a worthy increase of 8.5%. The latest three year period has also seen an excellent 116% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 50% over the next year. With the industry predicted to deliver 64% growth, the company is positioned for a weaker revenue result.
In light of this, it's alarming that GL TechLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What We Can Learn From GL TechLtd's P/S?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've concluded that GL TechLtd currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
And what about other risks? Every company has them, and we've spotted 3 warning signs for GL TechLtd you should know about.
If you're unsure about the strength of GL TechLtd'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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