There's No Escaping KSEC Intelligent Technology Co., Ltd.'s (SZSE:301311) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 2.2x KSEC Intelligent Technology Co., Ltd. (SZSE:301311) is a stock worth checking out, seeing as almost half of all the Machinery companies in China have P/S ratios greater than 3.4x and even P/S higher than 6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for KSEC Intelligent Technology

How KSEC Intelligent Technology Has Been Performing

For example, consider that KSEC Intelligent Technology's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction 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 KSEC Intelligent Technology's earnings, revenue and cash flow.

How Is KSEC Intelligent Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as KSEC Intelligent Technology's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. Regardless, revenue has managed to lift by a handy 6.2% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why KSEC Intelligent Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From KSEC Intelligent Technology's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of KSEC Intelligent Technology revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with KSEC Intelligent Technology (including 1 which is potentially serious).

If you're unsure about the strength of KSEC Intelligent Technology'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.