Optimistic Investors Push Astro-century Education&Technology Co.,Ltd (SZSE:300654) Shares Up 33% But Growth Is Lacking

The Astro-century Education&Technology Co.,Ltd (SZSE:300654) share price has done very well over the last month, posting an excellent gain of 33%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, when almost half of the companies in China's Media industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Astro-century Education&TechnologyLtd as a stock not worth researching with its 7.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Astro-century Education&TechnologyLtd

How Astro-century Education&TechnologyLtd Has Been Performing

The revenue growth achieved at Astro-century Education&TechnologyLtd 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Astro-century Education&TechnologyLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Astro-century Education&TechnologyLtd?

In order to justify its P/S ratio, Astro-century Education&TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. This was backed up an excellent period prior to see revenue up by 40% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's about the same on an annualised basis.

With this in mind, we find it intriguing that Astro-century Education&TechnologyLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What We Can Learn From Astro-century Education&TechnologyLtd's P/S?

Shares in Astro-century Education&TechnologyLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 look into Astro-century Education&TechnologyLtd has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Astro-century Education&TechnologyLtd with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.