You may think that with a price-to-sales (or "P/S") ratio of 2.6x Zhejiang Century Huatong Group Co.,Ltd (SZSE:002602) is definitely a stock worth checking out, seeing as almost half of all the Entertainment companies in China have P/S ratios greater than 5.3x and even P/S above 10x 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 reduced P/S.

How Has Zhejiang Century Huatong GroupLtd Performed Recently?

Zhejiang Century Huatong GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

How Is Zhejiang Century Huatong GroupLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Zhejiang Century Huatong GroupLtd's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 22% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 31% over the next year. That's shaping up to be similar to the 35% growth forecast for the broader industry.

With this information, we find it odd that Zhejiang Century Huatong GroupLtd is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Zhejiang Century Huatong GroupLtd's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've seen that Zhejiang Century Huatong GroupLtd currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Zhejiang Century Huatong GroupLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Zhejiang Century Huatong GroupLtd'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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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.