When you see that almost half of the companies in the Leisure industry in China have price-to-sales ratios (or "P/S") above 4x, Shanghai Phoenix Enterprise (Group) Co., Ltd. (SHSE:600679) looks to be giving off some buy signals with its 2.8x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Shanghai Phoenix Enterprise (Group)

How Has Shanghai Phoenix Enterprise (Group) Performed Recently?

The revenue growth achieved at Shanghai Phoenix Enterprise (Group) over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Shanghai Phoenix Enterprise (Group) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Shanghai Phoenix Enterprise (Group)'s Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shanghai Phoenix Enterprise (Group)'s to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Shanghai Phoenix Enterprise (Group)'s P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Shanghai Phoenix Enterprise (Group)'s P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

In line with expectations, Shanghai Phoenix Enterprise (Group) maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Shanghai Phoenix Enterprise (Group) that we have uncovered.

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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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.