The 30% share price decline and reversal of the prior period’s favourable performance will disappoint shareholders of China Tourism And Culture Investment Group Co., Ltd. (SHSE:600358). Shareholders have had a rough year, with the share price falling 35% in the past 30 days.
China Tourism And Culture Investment Group Ltd may be a viable investment option now that its price has dropped significantly. Considering that half of the companies in China’s hospitality industry have price-to-sales ratios (or “P/S”) above 5.1x, you might find it difficult to resist the opportunity. However, you shouldn’t accept the P/S restriction without question, as there can be beneficial reasons.
China Tourism Group’s Low P/S Outlook
Take China Tourism Group Culture Investment Group Ltd. as an example. Their revenue has declined for the past year, which is far from ideal. Investors may be pricing in a low P/S because they anticipate the company will fail to meet industry standards shortly. If this doesn’t come to fruition, though, current shareholders may have a positive outlook on the stock’s future.
Despite the lack of analyst projections, you can still get a favorable idea of China Tourism And Culture Investment Group Ltd’s profitability, sales, and cash flow by looking at this free data-rich visualization. Is China Tourism and Culture Investment Group Ltd. anticipating an increase in revenue? When a company’s growth is expected to lag behind the industry average, a P/S as low as China Tourism And Culture Investment Group Ltd.’s becomes acceptable.
China Tourism Group’s Decline and P/S Challenges
First, looking back, we can see that the company’s sales growth last year was lacklustre, falling 20% short of expectations. The company’s revenue has also decreased by 43% over the past three years, which is also not good. It’s disheartening to acknowledge that the company’s revenue growth during that period has been inadequate.
When the most recent decrease in revenue that the company saw over the medium term is contrasted to the rest of the industry, which is predicted to have a 31% gain in sales over the course of the next year, the company’s declining revenue is placed into perspective.
Given this context, understanding why China Tourism and Culture Investment Group Ltd.’s P/S is lower than most firms is reasonable. However, we don’t see declining sales leading to a stable P/S in the long run, which would leave shareholders disappointed in the end. Without improving the company’s top-line growth, the P/S could tumble to even lower levels.
China Tourism Group’s Low P/S Trend
Shares of China Tourism and Culture Investment Group Ltd have been trending downward, resulting in a relatively low P/S. As per our standard operating procedure, we reserve the price-to-sales ratio to assess the market’s perception of a company’s health.
Considering the industry’s predicted growth, our analysis of China Tourism And Culture Investment Group Ltd reveals that its low price-to-sales ratio is largely due to its declining revenue over the last medium term. At this time, shareholders are content with the low P/S since they understand that future revenue is unlikely to deliver surprises. As things stand, it appears doubtful that there will be any major change in the share price anytime soon, especially if the current trends in medium-term revenue continue.
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