Talkweb Information System Co.,Ltd. (SZSE:002261) Surges 26% Yet Its Low P/S Is No Reason For Excitement

Talkweb Information System Co.,Ltd. (SZSE:002261) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

In spite of the firm bounce in price, Talkweb Information SystemLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.2x, since almost half of all companies in the Entertainment industry in China have P/S ratios greater than 5.3x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Talkweb Information SystemLtd

How Has Talkweb Information SystemLtd Performed Recently?

Recent times have been advantageous for Talkweb Information SystemLtd as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Talkweb Information SystemLtd will help you uncover what's on the horizon.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 60% last year. The strong recent performance means it was also able to grow revenue by 115% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the one analyst following the company. With the industry predicted to deliver 29% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Talkweb Information SystemLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Talkweb Information SystemLtd's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Talkweb Information SystemLtd's P/S close to the industry median. 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 Talkweb Information SystemLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Talkweb Information SystemLtd (1 is significant!) that you should be aware 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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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.