17 Education & Technology Group Inc. (NASDAQ:YQ) has had an impressive month, with shares rising 25%. However, the mood isn’t entirely positive, as the stock is down 14% over the past year.
Even with the recent increase, 17 Education & Technology has a low price-to-sales ratio (P/S) of 0.6x. In comparison, many companies in the U.S. Consumer Services sector have P/S ratios above 1.6x. So, is this a good investment opportunity? We need to look a bit closer to understand the low P/S.
Performance Overview
Last year, 17 Education & Technology saw respectable revenue growth of 23%. Yet, investors may worry that this growth won’t keep pace with the broader industry. If revenue growth can outperform expectations, existing shareholders might feel more optimistic.
Do Revenue Projections Justify the Low P/S?
A P/S ratio this low usually suggests that the company’s growth is expected to lag behind its peers. Over the past three years, 17 Education & Technology experienced a severe revenue decline of 91%. This downturn has likely left shareholders feeling pessimistic about future growth.
When we compare its medium-term outlook to the industry’s expected growth of 13% over the next year, it looks bleak for 17 Education & Technology. This context clarifies why the company’s P/S is lower than most in its industry. With ongoing declines in revenue, it’s uncertain if maintaining the current P/S will be possible.
The Final Thought
While shares of 17 Education & Technology Group have recently climbed, its low P/S tells a story of caution. The ratio reflects muted revenue expectations, driven by falling revenues. Current investors seem to accept that future revenue may not bring surprises. If trends continue, a robust movement in share price could be hard to achieve.
Do keep in mind, there is 1 warning sign for 17 Education & Technology Group that investors should consider. If you’re interested in strong, profitable companies, explore this free list of intriguing businesses with low P/E ratios and proven earnings growth.
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This article by Simply Wall St shares general insights. Our analysis is based on historical data and is not intended as financial advice. It does not recommend buying or selling stock and doesn’t consider your individual financial needs. We aim for long-term analysis driven by solid data and do not always include the latest market changes. Simply Wall St holds no positions in any stocks mentioned.
