Unfortunately for some shareholders, the China Carbon Neutral Development Group Limited (HKG:1372) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 79% loss during that time.
Although its price has dipped substantially, it's still not a stretch to say that China Carbon Neutral Development Group's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Auto Components industry in Hong Kong, where the median P/S ratio is around 0.5x. 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 China Carbon Neutral Development Group
SEHK:1372 Price to Sales Ratio vs Industry February 1st 2024
What Does China Carbon Neutral Development Group's Recent Performance Look Like?
Recent times have been quite advantageous for China Carbon Neutral Development Group as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on China Carbon Neutral Development Group 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 China Carbon Neutral Development Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is China Carbon Neutral Development Group's Revenue Growth Trending?
China Carbon Neutral Development Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. The latest three year period has also seen an excellent 58% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
This is in contrast to the rest of the industry, which is expected to grow by 35% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this in mind, we find it intriguing that China Carbon Neutral Development Group's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
What We Can Learn From China Carbon Neutral Development Group's P/S?
Following China Carbon Neutral Development Group's share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that China Carbon Neutral Development Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
We don't want to rain on the parade too much, but we did also find 3 warning signs for China Carbon Neutral Development Group (2 make us uncomfortable!) that you need to be mindful 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.