We find that nearly half of the companies in the U.S. consumer services industry have a price-to-sales ratio (or “P/S”) of less than 1.4x. Four Seasons Education (Cayman) Inc. (NYSE:FEDU) appears to be giving a sell signal with a P/S ratio of 2x. However, it would be unwise to take P/S at face value, as there may be an explanation as to why it is so high.
Check out our latest analysis for Four Seasons Education (Cayman).
What does Four Seasons Education (Cayman)'s income statement mean for shareholders?
As an example, Four Seasons Education (Cayman)'s revenue has deteriorated in the last year, which is not ideal at all. Many probably expect the company to continue to outperform most other companies over the coming period, which may be keeping it from collapsing. If not, existing shareholders could become very nervous about the viability of the stock price.
We don't have analyst forecasts, but checking our forecasts will tell you how recent trends are setting up the company's future. free Four Seasons Education (Cayman) earnings, revenue and cash flow report.
Does Four Seasons Education (Cayman) have sufficient revenue growth forecast?
To justify Four Seasons Education (Cayman)'s P/S ratio, it would need to see impressive growth that outperforms its industry.
Looking back, last year saw the company's sales decline by 3.7%, which was disappointing. This means that over the long term, earnings are also decreasing, as revenues have fallen by a total of 74% over the past three years. Therefore, we can say that the recent revenue growth is unfavorable for the company.
When we weigh this medium-term revenue trajectory against the one-year forecast of 16% expansion for the industry as a whole, we find that to be an unpleasant outlook.
With this in mind, we're concerned that Four Seasons Education (Cayman)'s P/L is higher than that of its peers. Apparently, many of the company's investors are much more bullish than recent expectations and are unwilling to exit the stock at any price. If the P/S falls to a level commensurate with the recent negative growth rate, it's very likely that existing shareholders are preparing for future disappointment.
The last word
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 research on Four Seasons Education (Cayman) reveals that the P/S is not as low as expected, even with revenue contraction over the medium term, given the industry's expected growth. Ta. We are not satisfied with the high P/S at this point as it is very unlikely that this earnings performance will support such positive sentiment in the long term. If recent medium-term earnings trends continue, this could pose a significant risk to the investment of existing shareholders, and future investors may find it difficult to accept the current share value.
There are other important risk factors to consider, and we've found them. 3 warning signs for Four Seasons Education (Cayman) (The two don't go very well together!) Here's what you need to know before investing.
In these cases Risks are making me reconsider my opinion about Four Seasons Education (Cayman)explore our interactive list of quality stocks to see what else is out there.
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To see if Four Seasons Education (Cayman) is potentially overvalued or undervalued, check out our comprehensive analysis below. 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.
