Beijing Centergate Technologies (holding) Co., Ltd.'s (SZSE:000931) 39% Share Price Surge Not Quite Adding Up

Beijing Centergate Technologies (holding) Co., Ltd. (SZSE:000931) shares have continued their recent momentum with a 39% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Beijing Centergate Technologies (holding)'s price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in China's Real Estate industry is similar at about 2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Beijing Centergate Technologies (holding)

How Has Beijing Centergate Technologies (holding) Performed Recently?

Beijing Centergate Technologies (holding) has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Beijing Centergate Technologies (holding) 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 Centergate Technologies (holding)'s earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Beijing Centergate Technologies (holding)'s P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10.0% last year. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Beijing Centergate Technologies (holding)'s P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Beijing Centergate Technologies (holding)'s P/S

Beijing Centergate Technologies (holding) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Beijing Centergate Technologies (holding)'s average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Beijing Centergate Technologies (holding) (1 is a bit concerning!) that you need to be mindful of.

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.