To the annoyance of some shareholders, Shanghai LongYun Cultural Creation & Technology Group Co., Ltd. (SHSE:603729) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 11% share price drop.
In spite of the heavy fall in price, when almost half of the companies in China's Media industry have price-to-sales ratios (or "P/S") below 2.4x, you may still consider Shanghai LongYun Cultural Creation & Technology Group as a stock probably not worth researching with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
SHSE:603729 Price to Sales Ratio vs Industry June 5th 2024
What Does Shanghai LongYun Cultural Creation & Technology Group's Recent Performance Look Like?
Revenue has risen at a steady rate over the last year for Shanghai LongYun Cultural Creation & Technology Group, which is generally not a bad outcome. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
Although there are no analyst estimates available for Shanghai LongYun Cultural Creation & Technology Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Enough Revenue Growth Forecasted For Shanghai LongYun Cultural Creation & Technology Group?
Shanghai LongYun Cultural Creation & Technology Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 4.8% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 43% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 12% 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 Shanghai LongYun Cultural Creation & Technology 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Final Word
Despite the recent share price weakness, Shanghai LongYun Cultural Creation & Technology Group's P/S remains higher than most other companies in the industry. 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.
Our examination of Shanghai LongYun Cultural Creation & Technology Group revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
Plus, you should also learn about these 2 warning signs we've spotted with Shanghai LongYun Cultural Creation & Technology Group (including 1 which is significant).
If these risks are making you reconsider your opinion on Shanghai LongYun Cultural Creation & Technology Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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