TuanChe Limited (NASDAQ:TC) shares have had a really impressive month, gaining 33% after a shaky period beforehand.    Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 71% share price drop in the last twelve months.  

Although its price has surged higher, given about half the companies operating in the United States' Media industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider TuanChe as an attractive investment with its 0.2x 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.  

NasdaqCM:TC Price to Sales Ratio vs Industry May 23rd 2024

What Does TuanChe's P/S Mean For Shareholders?

For example, consider that TuanChe's financial performance has been poor lately as its revenue has been in decline.   Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer.  Those who are bullish on TuanChe 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 TuanChe, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

Is There Any Revenue Growth Forecasted For TuanChe?  

There's an inherent assumption that a company should underperform the industry for P/S ratios like TuanChe's to be considered reasonable.  

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line.   The last three years don't look nice either as the company has shrunk revenue by 51% in aggregate.  Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.  

Comparing that to the industry, which is predicted to deliver 4.6% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why TuanChe's P/S is lower than most of its industry peers.  However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment.  Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.  

The Bottom Line On TuanChe's P/S

Despite TuanChe's share price climbing recently, its P/S still lags most other companies.      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.

As we suspected, our examination of TuanChe revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for TuanChe (2 can't be ignored!) that you need to be mindful of.  

If you're unsure about the strength of TuanChe's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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