Those holding Shenzhen Centralcon Investment Holding Co., Ltd. (SZSE:000042) shares would be relieved that the share price has rebounded 46% 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 39% over that time.
Even after such a large jump in price, Shenzhen Centralcon Investment Holding may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Real Estate industry in China have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
SZSE:000042 Price to Sales Ratio vs Industry March 18th 2024
What Does Shenzhen Centralcon Investment Holding's P/S Mean For Shareholders?
For example, consider that Shenzhen Centralcon Investment Holding's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
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 Shenzhen Centralcon Investment Holding's earnings, revenue and cash flow.
How Is Shenzhen Centralcon Investment Holding's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Shenzhen Centralcon Investment Holding's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 39%. This means it has also seen a slide in revenue over the longer-term as revenue is down 41% 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.
Comparing that to the industry, which is predicted to deliver 10% 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 understandable that Shenzhen Centralcon Investment Holding's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Final Word
Despite Shenzhen Centralcon Investment Holding's share price climbing recently, its P/S still lags most other companies. 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 Shenzhen Centralcon Investment Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
It is also worth noting that we have found 3 warning signs for Shenzhen Centralcon Investment Holding (2 are concerning!) that you need to take into consideration.
If you're unsure about the strength of Shenzhen Centralcon Investment Holding'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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