When close to half the companies in the Real Estate industry in China have price-to-sales ratios (or "P/S") below 2.4x, you may consider Hainan Airport Infrastructure Co., Ltd (SHSE:600515) as a stock to avoid entirely with its 8.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
What Does Hainan Airport Infrastructure's P/S Mean For Shareholders?
Recent times haven't been great for Hainan Airport Infrastructure as its revenue has been falling quicker than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hainan Airport Infrastructure.Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Hainan Airport Infrastructure would need to produce outstanding growth that's well in excess of 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 15%. As a result, revenue from three years ago have also fallen 16% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.
With this information, we can see why Hainan Airport Infrastructure is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Hainan Airport Infrastructure's P/S?
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.
Our look into Hainan Airport Infrastructure shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.
You need to take note of risks, for example - Hainan Airport Infrastructure has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you're unsure about the strength of Hainan Airport Infrastructure'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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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.
