With a median price-to-sales (or "P/S") ratio of close to 2.6x in the Machinery industry in China, you could be forgiven for feeling indifferent about OMH SCIENCE Group Co., Ltd's (SZSE:300486) P/S ratio of 2.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
SZSE:300486 Price to Sales Ratio vs Industry May 31st 2024
How OMH SCIENCE Group Has Been Performing
As an illustration, revenue has deteriorated at OMH SCIENCE Group over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on OMH SCIENCE Group will help you shine a light on its historical performance.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, OMH SCIENCE Group would need to produce growth that's similar to the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. 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.
In contrast to the company, the rest of the industry is expected to grow by 24% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we find it worrying that OMH SCIENCE Group's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We find it unexpected that OMH SCIENCE Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
You should always think about risks. Case in point, we've spotted 2 warning signs for OMH SCIENCE Group 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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由于中国机械行业的市销率中位数(或 “市销率”)接近2.6倍,你对OMH SCIENCE Group Co., Ltd(深圳证券交易所代码:300486)的2.7倍市销率漠不关心是可以原谅的。但是,如果市销率没有合理的基础,投资者可能会忽略明显的机会或潜在的挫折。