When you see that almost half of the companies in the Forestry industry in Hong Kong have price-to-sales ratios (or "P/S") above 0.9x, Nine Dragons Paper (Holdings) Limited (HKG:2689) looks to be giving off some buy signals with its 0.3x 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 limited.
Check out our latest analysis for Nine Dragons Paper (Holdings)
What Does Nine Dragons Paper (Holdings)'s P/S Mean For Shareholders?
Recent times have been advantageous for Nine Dragons Paper (Holdings) as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on Nine Dragons Paper (Holdings) will help you uncover what's on the horizon.Do Revenue Forecasts Match The Low P/S Ratio?
Nine Dragons Paper (Holdings)'s P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 4.9% last year. Still, lamentably revenue has fallen 3.4% in aggregate from three years ago, which is disappointing. 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 three years should generate growth of 9.0% each year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.1% per year, which is not materially different.
With this information, we find it odd that Nine Dragons Paper (Holdings) is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've seen that Nine Dragons Paper (Holdings) currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Nine Dragons Paper (Holdings) you should be aware of.
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.