Those holding CSG Smart Science&Technology Co.,Ltd. (SZSE:300222) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 19% over that time.
Even after such a large jump in price, when close to half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider CSG Smart Science&TechnologyLtd as an enticing stock to check out with its 1.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
SZSE:300222 Price to Sales Ratio vs Industry March 4th 2024
How CSG Smart Science&TechnologyLtd Has Been Performing
As an illustration, revenue has deteriorated at CSG Smart Science&TechnologyLtd over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of 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 CSG Smart Science&TechnologyLtd's earnings, revenue and cash flow.
How Is CSG Smart Science&TechnologyLtd's Revenue Growth Trending?
CSG Smart Science&TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.4%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 47% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that CSG Smart Science&TechnologyLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Final Word
CSG Smart Science&TechnologyLtd's stock price has surged recently, but its but its P/S still remains modest. 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.
As we suspected, our examination of CSG Smart Science&TechnologyLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
Before you take the next step, you should know about the 1 warning sign for CSG Smart Science&TechnologyLtd that we have uncovered.
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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