Yahoo Finance Four Seasons Education (Cayman) Inc.'s (NYSE:FEDU) Share Price Not Quite Adding Up
It's not a stretch to say that Four Seasons Education (Cayman) Inc.'s (NYSE:FEDU) price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" for companies in the Consumer Services industry in the United States, where the median P/S ratio is around 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
View our latest analysis for Four Seasons Education (Cayman)
What Does Four Seasons Education (Cayman)'s Recent Performance Look Like?
For example, consider that Four Seasons Education (Cayman)'s financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Four Seasons Education (Cayman)'s earnings, revenue and cash flow.
How Is Four Seasons Education (Cayman)'s Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like Four Seasons Education (Cayman)'s is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered a frustrating 3.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 74% in total over the last three years. 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 13% shows it's an unpleasant look.
With this in mind, we find it worrying that Four Seasons Education (Cayman)'s P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
What Does Four Seasons Education (Cayman)'s P/S Mean For Investors?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our look at Four Seasons Education (Cayman) 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Four Seasons Education (Cayman) (1 doesn't sit too well with us) you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
