MCC Meili Cloud Computing Industry Investment Co., Ltd's (SZSE:000815) 25% Price Boost Is Out Of Tune With Revenues

MCC Meili Cloud Computing Industry Investment Co., Ltd (SZSE:000815) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking MCC Meili Cloud Computing Industry Investment is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.2x, considering almost half the companies in China's Forestry industry have P/S ratios below 1.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for MCC Meili Cloud Computing Industry Investment

What Does MCC Meili Cloud Computing Industry Investment's P/S Mean For Shareholders?

The revenue growth achieved at MCC Meili Cloud Computing Industry Investment over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for MCC Meili Cloud Computing Industry Investment, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For MCC Meili Cloud Computing Industry Investment?

In order to justify its P/S ratio, MCC Meili Cloud Computing Industry Investment would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. Still, lamentably revenue has fallen 6.7% in aggregate from three years ago, which is disappointing. 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 13% 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 MCC Meili Cloud Computing Industry Investment's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.

The Key Takeaway

MCC Meili Cloud Computing Industry Investment's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of MCC Meili Cloud Computing Industry Investment revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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 MCC Meili Cloud Computing Industry Investment that you should be aware of.

If these risks are making you reconsider your opinion on MCC Meili Cloud Computing Industry Investment, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.