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London
December 22, 2024
PI Global Investments
Property

Shanghai Zendai Property Limited’s (HKG:755) 58% Share Price Surge Not Quite Adding Up


Shanghai Zendai Property Limited (HKG:755) shares have had a really impressive month, gaining 58% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 46%.

In spite of the firm bounce in price, there still wouldn’t be many who think Shanghai Zendai Property’s price-to-sales (or “P/S”) ratio of 0.8x is worth a mention when the median P/S in Hong Kong’s Real Estate industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shanghai Zendai Property

ps-multiple-vs-industry
SEHK:755 Price to Sales Ratio vs Industry October 18th 2024

How Has Shanghai Zendai Property Performed Recently?

We’d have to say that with no tangible growth over the last year, Shanghai Zendai Property’s revenue has been unimpressive. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. Those who are bullish on Shanghai Zendai Property 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 Shanghai Zendai Property, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Shanghai Zendai Property’s Revenue Growth Trending?

The only time you’d be comfortable seeing a P/S like Shanghai Zendai Property’s is when the company’s growth is tracking the industry closely.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it’s an improvement, it wasn’t enough to get the company out of the hole it was in, with revenue down 93% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry’s one-year forecast for expansion of 5.4% shows it’s an unpleasant look.

In light of this, it’s somewhat alarming that Shanghai Zendai Property’s P/S sits in line with 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. There’s a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Shanghai Zendai Property’s P/S Mean For Investors?

Its shares have lifted substantially and now Shanghai Zendai Property’s P/S is back within range of the industry median. While the price-to-sales ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of revenue expectations.

Our look at Shanghai Zendai Property revealed its shrinking revenues over the medium-term haven’t impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we’re uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders’ investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example – Shanghai Zendai Property has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.



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