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Optimistic investors are pushing the stock of Beijing Airport High-Tech Park Co., Ltd. (SHSE:600463) up 45%, but no growth

Beijing Airport High-Tech Park Co., Ltd. (SHSE:600463) Shareholders have rewarded their patience with a 45% share price rise in the past month. Looking back a little further, it’s encouraging to see that the stock is up 28% over the past year.

Since its price has risen and around half of the companies in China’s construction sector have a price-to-sales ratio (or ‘P/S’) of less than 1.1x, you can think of Beijing Airport High-Tech Park as a stock that you should avoid completely. with a price/earnings ratio of 6.8x. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the very high P/S.

Check out our latest analysis for Beijing Airport High-Tech Park

ps-multiple-vs-industry
SHSE:600463 Price-to-sales ratio versus industry May 20, 2024

What is the recent performance of Beijing Airport High-Tech Park?

To illustrate, sales at Beijing Airport High-Tech Park have deteriorated over the past year, which is not ideal at all. It may be that many expect the company to still outperform most other companies in the coming period, keeping its P/S from collapsing. You’d really hope so, otherwise you’d be paying a pretty high price for no particular reason.

While there are no analyst estimates available for Beijing Airport High-Tech Park, take a look at this free data-rich visualization to see how the company is doing in terms of revenue, revenue and cash flow.

Do the revenue forecasts match the high P/S ratio?

There is an inherent assumption that a company must perform much better than the industry for P/S ratios such as Beijing Airport High-Tech Park to be considered reasonable.

Retroactively, the past year saw a frustrating 24% decline in the company’s revenue. The last three years don’t look good either, as the company has shrunk revenue by 62% overall. So unfortunately, we have to acknowledge that the company hasn’t done a good job of growing revenue over that time.

Comparing that medium-term revenue trajectory against the industry’s one-year forecast for 15% growth reveals that this is an unpleasant picture.

In light of this, it is alarming that Beijing Airport High-Tech Park’s P/S rises above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and hoping for a turnaround in the company’s business prospects. There is a very good chance that existing shareholders are preparing for future disappointment if the price/earnings ratio falls to a level more in line with recent negative growth figures.

What does the P/S of Beijing Airport High-Tech Park mean for investors?

The strong increase in share prices has meant that the price-earnings ratio of Beijing Airport High-Tech Park has also risen enormously. It’s not wise to use price-to-sales ratio alone to determine whether you should sell your shares, but it can provide a practical guide to the company’s future prospects.

We found that Beijing Airport High-Tech Park is currently trading at a much higher than expected price-to-earnings ratio as recent earnings have declined over the medium term. If we see sales decline and fall below industry expectations, we think the possibility of the share price falling is very real, bringing the price/earnings ratio back to reasonable levels. Unless conditions improve over the recent medium term, it wouldn’t be wrong to expect a tough period for the company’s shareholders.

Moreover, you should also learn more about this 3 warning signs we spotted with Beijing Airport High-Tech Park (including 2 that are a bit concerning).

If companies with solid past earnings growth are for youyou might want to see this free collection of other companies with strong earnings growth and low price/earnings ratios.

Valuation is complex, but we help make it simple.

Invent or High-tech park at Beijing airport may be over or undervalued if you look at our comprehensive analysis, including fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.