17 Education & Technology Group Co., Ltd. (NASDAQ:YQ) stock had a very successful month, rising 28% after a volatile period up to that point. Not all shareholders are overjoyed, as the share price is still down 45% in the past 12 months.
Despite a solid price recovery, it would be an understatement to say that 17 Education & Technology Group's current price-to-sales (or “P/S”) ratio of 1.1x looks quite “moderate.” Not. When compared to the US consumer services industry, the median P/S ratio is approximately 1.3x. However, without a rational basis for the P/S, investors may miss obvious opportunities or potential setbacks.
Check out our latest analysis for 17 Education & Technology Group.
17 What does Education & Technology Group's income statement mean for shareholders?
For example, consider that 17 Education & Technology Group's recent financial performance has deteriorated because its revenue has declined. Investors probably believe that recent earnings performance is good enough to keep up with industry standards, which prevents the bottom line from declining. If you like the company, you'd at least hope that would happen so you could potentially buy shares while the company wasn't very favorable.
There are no analyst forecasts available for 17 Education & Technology Group, but take a look at this. free Data-rich visualizations show how a company's revenue, revenue, and cash flow stack up.
Does the earnings forecast match the P/S ratio?
17 Education & Technology Group There is an inherent assumption that for a P/S ratio to be considered reasonable, a company must be in line with its industry.
When I reviewed last year's financials, I was disappointed to see that our revenue had declined by 84%. As a result, his overall revenue from three years ago also fell by 84%. So we can say that the recent revenue growth is unfavorable for the company.
In contrast to the company, the rest of the industry is expected to grow by 16% over the next year, which truly takes into account the company's recent medium-term revenue decline.
Considering this, it's somewhat concerning that 17 Education & Technology Group's income statement is in line with most other companies. Most investors seem to be ignoring the recent slow growth rate and hoping for an improvement in the company's earnings outlook. Only the boldest would think these prices are sustainable, as a continuation of recent earnings trends will likely eventually weigh on the stock.
17 What does Education & Technology Group's income statement mean to investors?
17 Education & Technology Group's stock has had great momentum recently, with its P/S level being on par with other industries. Although it is not wise to use the price-to-sales ratio alone to decide whether to sell a stock, it can be a practical guide to a company's future prospects.
Our review of 17 Education & Technology Group reveals that declining revenues over the medium term have not had as much of an impact on the bottom line as expected, given the industry's expected growth. Given that earnings are trending in the opposite direction in the context of industry growth forecasts, it makes sense to expect the stock price to decline in the near term, potentially resulting in a modest P/S decline. Unless the recent medium-term situation improves, it is not wrong to expect that the company's shareholders will continue to have difficult times going forward.
I don't really want it to rain on the parade, but it did rain. 2 warning signs for 17 Education & Technology Group (1 is not very good for us!) You have to be careful with this.
In these cases Risks should make you reconsider your opinion about 17 Education & Technology Groupexplore our interactive list of quality stocks to see what else is out there.
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis to see if 17 Education & Technology Group is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
See free analysis
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This 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 long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
