Suofeiya Home Collection Co., Ltd.'s (SZSE:002572) price-to-sales (or "P/S") ratio of 1.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Consumer Durables industry in China have P/S ratios greater than 2x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Suofeiya Home Collection

What Does Suofeiya Home Collection's Recent Performance Look Like?

Recent revenue growth for Suofeiya Home Collection has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Suofeiya Home Collection will be hoping that this isn't the case.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Suofeiya Home Collection would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. The latest three year period has also seen an excellent 54% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the analysts following the company. With the industry predicted to deliver 13% growth , the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Suofeiya Home Collection's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

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.

We've seen that Suofeiya Home Collection 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. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Suofeiya Home Collection you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.