Despite having good results to begin with, SDM Education Group Holdings Co., Ltd. (HKG:8363) stock has been on a roll, rising 26% in the past 30 days. Looking back a little further, it's encouraging to see that the share price is up 88% in the last year.
Even after such price increases, SDM We still think Education Group Holdings is a good company. The P/S multiple is 0.6x, making it a solid investment opportunity. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the decline in P/S.
Check out our latest analysis for SDM Education Group Holdings.
How has SDM Education Group Holdings been performing recently?
SDM Education Group Holdings has been doing well lately, with its earnings growing at a solid pace. One possibility is that the P/S is low because investors believe this respectable earnings growth may actually underperform the overall industry in the near future. If you like the company, you'll hope it doesn't so you can potentially buy shares when the company is unpopular.
Want a complete picture of a company's earnings, revenue and cash flow? Then check out our free The report on SDM Education Group Holdings helps shed light on its historical achievements.
What are SDM Education Group Holdings' earnings growth trends?
SDM Education Group Holdings' P/S ratio is typical for a company that has limited growth potential and, importantly, is underperforming its industry.
Looking back at last year's revenue growth, the company posted an impressive 22% increase. Its strong recent performance means it has been able to grow its revenue by a total of 79% over the past three years. So we can start by seeing that the company has done a great job of growing its earnings over that period.
Compared to an industry that is expected to grow 20% over the next 12 months, the company's momentum is fairly similar based on its recent medium-term annualized earnings results.
With this in mind, it's interesting to see that SDM Education Group Holdings' P/L is not as strong as its peers. Perhaps most investors aren't convinced the company can maintain its recent growth rate.
Important points
The recent share price rally wasn't enough to lift SDM Education Group Holdings' P&L to near the industry median. It has been argued that the price-to-sales ratio, while a poor measure of value in certain industries, can be a powerful indicator of business confidence.
The fact that SDM Education Group Holdings is currently trading at a lower P/S relative to its industry is unexpected given its recent three years of growth, and is in line with overall industry expectations. If we see earnings growth in line with the industry, but the P/S is lower than expected, we assume that underlying risks may be putting downward pressure on the stock.Although recently
Before you take the next step, you need to know the following: 3 warning signs for SDM Education Group Holdings (2 should not be ignored!) we found out.
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Valuation is complex, but we help make it simple.
Check out our comprehensive analysis to see if SDM Education Group Holdings is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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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.
