Optimistic Investors Push Shanghai CDXJ Digital Technology Co.,LTD (SHSE:603887) Shares Up 43% But Growth Is Lacking

Shanghai CDXJ Digital Technology Co.,LTD (SHSE:603887) shares have continued their recent momentum with a 43% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 3.8% isn't as attractive.

Since its price has surged higher, you could be forgiven for thinking Shanghai CDXJ Digital TechnologyLTD is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.9x, considering almost half the companies in China's Construction industry have P/S ratios below 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Shanghai CDXJ Digital TechnologyLTD

What Does Shanghai CDXJ Digital TechnologyLTD's Recent Performance Look Like?

For instance, Shanghai CDXJ Digital TechnologyLTD's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shanghai CDXJ Digital TechnologyLTD will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

Shanghai CDXJ Digital TechnologyLTD's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. As a result, revenue from three years ago have also fallen 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 14% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Shanghai CDXJ Digital TechnologyLTD's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Shanghai CDXJ Digital TechnologyLTD's P/S Mean For Investors?

Shanghai CDXJ Digital TechnologyLTD shares have taken a big step in a northerly direction, but its P/S is elevated as a result. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shanghai CDXJ Digital TechnologyLTD currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Shanghai CDXJ Digital TechnologyLTD (1 is a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Shanghai CDXJ Digital TechnologyLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.