With a price-to-sales (or "P/S") ratio of 0.1x China Grand Automotive Services Group Co.,Ltd (SHSE:600297) may be sending bullish signals at the moment, given that almost half of all the Specialty Retail companies in China have P/S ratios greater than 1.3x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for China Grand Automotive Services GroupLtd

How Has China Grand Automotive Services GroupLtd Performed Recently?

China Grand Automotive Services GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For China Grand Automotive Services GroupLtd?

The only time you'd be truly comfortable seeing a P/S as low as China Grand Automotive Services GroupLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 3.1% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 14% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 2.4% over the next year. With the industry predicted to deliver 24% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that China Grand Automotive Services GroupLtd's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's clear to see that China Grand Automotive Services GroupLtd maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

You should always think about risks. Case in point, we've spotted 1 warning sign for China Grand Automotive Services GroupLtd you should be aware of.

If these risks are making you reconsider your opinion on China Grand Automotive Services GroupLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.