Shanghai Metersbonwe Fashion and Accessories Co., Ltd. (SZSE:002269) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.
Although its price has dipped substantially, given close to half the companies operating in China’s Luxury industry have price-to-sales ratios (or “P/S”) below 1.5x, you may still consider Shanghai Metersbonwe Fashion and Accessories as a stock to potentially avoid with its 2.3x P/S ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Shanghai Metersbonwe Fashion and Accessories
What Does Shanghai Metersbonwe Fashion and Accessories’ P/S Mean For Shareholders?
As an illustration, revenue has deteriorated at Shanghai Metersbonwe Fashion and Accessories over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn’t the case, investors might get caught out paying too much for the stock.
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shanghai Metersbonwe Fashion and Accessories’ earnings, revenue and cash flow.
Is There Enough Revenue Growth Forecasted For Shanghai Metersbonwe Fashion and Accessories?
In order to justify its P/S ratio, Shanghai Metersbonwe Fashion and Accessories would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a frustrating 11% decrease to the company’s top line. As a result, revenue from three years ago have also fallen 67% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 17% over the next year, which really puts the company’s recent medium-term revenue decline into perspective.
In light of this, it’s alarming that Shanghai Metersbonwe Fashion and Accessories’ P/S sits above the majority of other companies. 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 heavily on the share price eventually.
The Final Word
Despite the recent share price weakness, Shanghai Metersbonwe Fashion and Accessories’ P/S remains higher than most other companies in the industry. 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.
We’ve established that Shanghai Metersbonwe Fashion and Accessories currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren’t comfortable with the high P/S as this revenue performance is highly unlikely to support such 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.
You should always think about risks. Case in point, we’ve spotted 1 warning sign for Shanghai Metersbonwe Fashion and Accessories you should be aware of.
If these risks are making you reconsider your opinion on Shanghai Metersbonwe Fashion and Accessories, explore our interactive list of high quality stocks to get an idea of what else is out there.
Valuation is complex, but we’re helping make it simple.
Find out whether Shanghai Metersbonwe Fashion and Accessories is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.