There's No Escaping Beijing Watertek Information Technology Co., Ltd.'s (SZSE:300324) Muted Revenues Despite A 43% Share Price Rise

Beijing Watertek Information Technology Co., Ltd. (SZSE:300324) shares have had a really impressive month, gaining 43% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Beijing Watertek Information Technology may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2x, since almost half of all companies in the Aerospace & Defense industry in China have P/S ratios greater than 6.2x and even P/S higher than 11x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing Watertek Information Technology

What Does Beijing Watertek Information Technology's P/S Mean For Shareholders?

For example, consider that Beijing Watertek Information Technology's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on Beijing Watertek Information Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Beijing Watertek Information Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Beijing Watertek Information Technology?

The only time you'd be truly comfortable seeing a P/S as depressed as Beijing Watertek Information Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 6.9% decline in revenue over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 39% shows it's an unpleasant look.

In light of this, it's understandable that Beijing Watertek Information Technology's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Beijing Watertek Information Technology's recent share price jump still sees fails to bring its P/S alongside the industry median. 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's no surprise that Beijing Watertek Information Technology maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Beijing Watertek Information Technology that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.