Those holding So-Young International Inc. (NASDAQ:SY) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 93% in the last year.
In spite of the firm bounce in price, So-Young International's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Interactive Media and Services industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. 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 So-Young International
NasdaqGM:SY Price to Sales Ratio vs Industry November 24th 2023
What Does So-Young International's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, So-Young International has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think So-Young International's future stacks up against the industry? In that case, our free report is a great place to start.
How Is So-Young International's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as So-Young International's is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 3.6% last year. The latest three year period has also seen a 17% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 15% over the next year. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.
With this in consideration, we find it intriguing that So-Young International's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Key Takeaway
Despite So-Young International's share price climbing recently, its P/S still lags most other companies. 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.
A look at So-Young International's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for So-Young International with six simple checks on some of these key factors.
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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