When close to half the companies operating in the Consumer Services industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.2x, you may consider China Maple Leaf Educational Systems Limited (HKG:1317) as an attractive investment with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for China Maple Leaf Educational Systems
How China Maple Leaf Educational Systems Has Been Performing
China Maple Leaf Educational Systems has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Although there are no analyst estimates available for China Maple Leaf Educational Systems, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Any Revenue Growth Forecasted For China Maple Leaf Educational Systems?
China Maple Leaf Educational Systems' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 19% shows it's noticeably more attractive.
With this information, we find it odd that China Maple Leaf Educational Systems is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Final Word
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our examination of China Maple Leaf Educational Systems revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 2 warning signs for China Maple Leaf Educational Systems that you should be aware of.
If you're unsure about the strength of China Maple Leaf Educational Systems' 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.