With a median price-to-sales (or "P/S") ratio of close to 1x in the Consumer Services industry in Hong Kong, you could be forgiven for feeling indifferent about China New Higher Education Group Limited's (HKG:2001) P/S ratio of 0.5x. 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.
See our latest analysis for China New Higher Education Group
How China New Higher Education Group Has Been Performing
Recent revenue growth for China New Higher Education Group has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on China New Higher Education Group will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.
Want the full picture on analyst estimates for the company? Then our free report on China New Higher Education Group will help you uncover what's on the horizon.Is There Some Revenue Growth Forecasted For China New Higher Education Group?
There's an inherent assumption that a company should be matching the industry for P/S ratios like China New Higher Education Group's to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 61% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 8.4% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 13% per annum, which is noticeably more attractive.
With this information, we find it interesting that China New Higher Education Group is trading at a fairly similar P/S compared to the industry. 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.
What We Can Learn From China New Higher Education Group'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.
Given that China New Higher Education Group'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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Before you settle on your opinion, we've discovered 2 warning signs for China New Higher Education Group that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.