The ENC Digital Technology Co., Ltd (SHSE:603869) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.
Even after such a large drop in price, there still wouldn't be many who think ENC Digital Technology's price-to-sales (or "P/S") ratio of 3.9x is worth a mention when the median P/S in China's IT industry is similar at about 3.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
SHSE:603869 Price to Sales Ratio vs Industry February 2nd 2024
What Does ENC Digital Technology's Recent Performance Look Like?
For example, consider that ENC Digital Technology's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on ENC Digital Technology's earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
ENC Digital Technology's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. As a result, revenue from three years ago have also fallen 57% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Comparing that to the industry, which is predicted to deliver 44% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's somewhat alarming that ENC Digital Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
The Key Takeaway
Following ENC Digital Technology's share price tumble, its P/S is just clinging on to the industry median P/S. 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 find it unexpected that ENC Digital Technology trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for ENC Digital Technology 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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有鉴于此,ENC Digital Technology的市销率与其他大多数公司持平,这有点令人震惊。看来大多数投资者都忽视了最近的糟糕增长率,并希望公司的业务前景有所好转。只有最大胆的人才会假设这些价格是可持续的,因为近期收入趋势的延续最终可能会压制股价。
关键要点
在ENC Digital Technology股价暴跌之后,其市盈率仅保持行业中位数。通常,我们倾向于限制使用市销比来确定市场对公司整体健康状况的看法。
我们发现,尽管中期收入下降,但ENC Digital Technology的市销率却与该行业其他部门相当,这出乎意料,而整个行业预计将增长。尽管它与行业相匹配,但我们对当前的市销率感到不舒服,因为这种惨淡的收入表现不太可能长期支持更积极的情绪。除非近期中期情况有所改善,否则预计公司股东将面临艰难时期是没有错的。