It's not a stretch to say that ANE (Cayman) Inc.'s (HKG:9956) price-to-sales (or "P/S") ratio of 0.7x seems quite "middle-of-the-road" for Transportation companies in Hong Kong, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for ANE (Cayman)
How Has ANE (Cayman) Performed Recently?
ANE (Cayman) certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ANE (Cayman).Is There Some Revenue Growth Forecasted For ANE (Cayman)?
There's an inherent assumption that a company should be matching the industry for P/S ratios like ANE (Cayman)'s to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 16%. Revenue has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 15% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.1%, which is noticeably less attractive.
With this in consideration, we find it intriguing that ANE (Cayman)'s P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Key Takeaway
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.
Looking at ANE (Cayman)'s analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for ANE (Cayman) with six simple checks.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.