Beijing XIAOCHENG Technology Stock Co., Ltd's (SZSE:300139) 51% Price Boost Is Out Of Tune With Revenues

Beijing XIAOCHENG Technology Stock Co., Ltd (SZSE:300139) shareholders have had their patience rewarded with a 51% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

After such a large jump in price, Beijing XIAOCHENG Technology Stock may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 15x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 5.7x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing XIAOCHENG Technology Stock

What Does Beijing XIAOCHENG Technology Stock's P/S Mean For Shareholders?

Revenue has risen firmly for Beijing XIAOCHENG Technology Stock recently, which is pleasing to see. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing XIAOCHENG Technology Stock will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Beijing XIAOCHENG Technology Stock?

The only time you'd be truly comfortable seeing a P/S as steep as Beijing XIAOCHENG Technology Stock's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. Still, revenue has fallen 41% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 34% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Beijing XIAOCHENG Technology Stock is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Bottom Line On Beijing XIAOCHENG Technology Stock's P/S

Beijing XIAOCHENG Technology Stock's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Beijing XIAOCHENG Technology Stock currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Beijing XIAOCHENG Technology Stock you should be aware 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.