Those holding Shenzhen Topway Video Communication Co., Ltd (SZSE:002238) shares would be relieved that the share price has rebounded 35% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.
After such a large jump in price, when almost half of the companies in China's Media industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Shenzhen Topway Video Communication as a stock not worth researching with its 6.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
SZSE:002238 Price to Sales Ratio vs Industry March 18th 2024
What Does Shenzhen Topway Video Communication's Recent Performance Look Like?
For example, consider that Shenzhen Topway Video Communication's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for Shenzhen Topway Video Communication, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Enough Revenue Growth Forecasted For Shenzhen Topway Video Communication?
In order to justify its P/S ratio, Shenzhen Topway Video Communication would need to produce outstanding growth that's well in excess of 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 2.0%. As a result, revenue from three years ago have also fallen 15% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this in mind, we find it worrying that Shenzhen Topway Video Communication's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Bottom Line On Shenzhen Topway Video Communication's P/S
Shenzhen Topway Video Communication's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.
Our examination of Shenzhen Topway Video Communication revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
You should always think about risks. Case in point, we've spotted 3 warning signs for Shenzhen Topway Video Communication you should be aware of, and 1 of them doesn't sit too well with us.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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我们对深圳Topway Video Communication的审查显示,鉴于该行业的增长,其中期收入的萎缩并未导致市销率低于我们的预期。当我们看到收入倒退且表现低于行业预测时,我们认为股价下跌的可能性是真实存在的,这使市销率回到了合理的境地。除非最近的中期状况明显改善,否则投资者将很难接受股价作为公允价值。