Offcn Education Technology Co., Ltd. (SZSE:002607) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 58% share price drop in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Offcn Education Technology's price-to-sales (or "P/S") ratio of 3.8x right now seems quite "middle-of-the-road" compared to the Consumer Services industry in China, where the median P/S ratio is around 3.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Offcn Education Technology's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Offcn Education Technology's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Is There Some Revenue Growth Forecasted For Offcn Education Technology?

In order to justify its P/S ratio, Offcn Education Technology 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 34%. This means it has also seen a slide in revenue over the longer-term as revenue is down 75% 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.

Turning to the outlook, the next year should generate growth of 29% as estimated by the three analysts watching the company. With the industry predicted to deliver 32% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that Offcn Education Technology's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Offcn Education Technology's P/S

Offcn Education Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Given that Offcn Education Technology's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Offcn Education Technology is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Offcn Education Technology'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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