Chengdu SIWI Science and Technology Company Limited’s (HKG:1202) Business Is Yet to Catch Up With Its Share Price
With a median price-to-sales (or “P/S”) ratio of close to 0.4x in the Communications industry in Hong Kong, you could be forgiven for feeling indifferent about Chengdu SIWI Science and Technology Company Limited’s (HKG:1202) P/S ratio of 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Chengdu SIWI Science and Technology
SEHK:1202 Price to Sales Ratio vs Industry December 18th 2023
How Has Chengdu SIWI Science and Technology Performed Recently?
Chengdu SIWI Science and Technology has been doing a decent job lately as it’s been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Chengdu SIWI Science and Technology will be hoping that this isn’t the case, so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Chengdu SIWI Science and Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Chengdu SIWI Science and Technology’s Revenue Growth Trending?
There’s an inherent assumption that a company should be matching the industry for P/S ratios like Chengdu SIWI Science and Technology’s to be considered reasonable.
Retrospectively, the last year delivered a decent 6.6% gain to the company’s revenues. Still, lamentably revenue has fallen 20% in aggregate from three years ago, which is disappointing. Therefore, it’s fair to say the revenue growth recently has been undesirable for the company.
In contrast to the company, the rest of the industry is expected to grow by 15% over the next year, which really puts the company’s recent medium-term revenue decline into perspective.
With this information, we find it concerning that Chengdu SIWI Science and Technology is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company’s business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
The Bottom Line On Chengdu SIWI Science and Technology’s P/S
We’d say the price-to-sales ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
The fact that Chengdu SIWI Science and Technology currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we’re uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
Before you settle on your opinion, we’ve discovered 2 warning signs for Chengdu SIWI Science and Technology (1 is a bit unpleasant!) that you should be aware of.
If these risks are making you reconsider your opinion on Chengdu SIWI Science and Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
