To the annoyance of some shareholders, China Frontier Technology Group (HKG:1661) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.
Although its price has dipped substantially, there still wouldn’t be many who think China Frontier Technology Group’s price-to-sales (or “P/S”) ratio of 1.4x is worth a mention when the median P/S in Hong Kong’s Media industry is similar at about 1.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for China Frontier Technology Group
How China Frontier Technology Group Has Been Performing
Recent times have been quite advantageous for China Frontier Technology Group as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s not quite in favour.
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 China Frontier Technology Group’s earnings, revenue and cash flow.
Do Revenue Forecasts Match The P/S Ratio?
China Frontier Technology 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 42% gain to the company’s top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it’s fair to say the revenue growth recently has been superb for the company.
Comparing that recent medium-term revenue trajectory with the industry’s one-year growth forecast of 17% shows it’s noticeably more attractive.
In light of this, it’s curious that China Frontier Technology Group’s P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
What Does China Frontier Technology Group’s P/S Mean For Investors?
Following China Frontier Technology Group’s share price tumble, its P/S is just clinging on to the industry median P/S. 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 China Frontier Technology Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It’d be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
We don’t want to rain on the parade too much, but we did also find 1 warning sign for China Frontier Technology Group 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).
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
