GDS Holdings Limited (NASDAQ:GDS) Might Not Be As Mispriced As It Looks

GDS Holdings Ltd. Sponsored ADR Class A -1.40%

GDS Holdings Ltd. Sponsored ADR Class A

GDS

6.32

-1.40%

GDS Holdings Limited's (NASDAQ:GDS) price-to-sales (or "P/S") ratio of 1.3x might make it look like a buy right now compared to the IT industry in the United States, where around half of the companies have P/S ratios above 2x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for GDS Holdings

ps-multiple-vs-industry
NasdaqGM:GDS Price to Sales Ratio vs Industry December 29th 2023

What Does GDS Holdings' P/S Mean For Shareholders?

Recent times haven't been great for GDS Holdings as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think GDS Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

GDS Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.6%. The latest three year period has also seen an excellent 85% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the analysts watching the company. That's shaping up to be similar to the 14% per year growth forecast for the broader industry.

In light of this, it's peculiar that GDS Holdings' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From GDS Holdings' P/S?

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.

It looks to us like the P/S figures for GDS Holdings remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

We don't want to rain on the parade too much, but we did also find 1 warning sign for GDS Holdings that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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