There's Reason For Concern Over Beijing XIAOCHENG Technology Stock Co., Ltd's (SZSE:300139) Massive 43% Price Jump

Those holding Beijing XIAOCHENG Technology Stock Co., Ltd (SZSE:300139) shares would be relieved that the share price has rebounded 43% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.1% over the last year.

Since its price has surged higher, Beijing XIAOCHENG Technology Stock's price-to-sales (or "P/S") ratio of 9.7x might make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.4x and even P/S below 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Beijing XIAOCHENG Technology Stock

How Beijing XIAOCHENG Technology Stock Has Been Performing

Beijing XIAOCHENG Technology Stock has been doing a good job lately as it's been growing revenue at a solid pace. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 XIAOCHENG Technology Stock's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Beijing XIAOCHENG Technology Stock's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 41% overall. 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 37% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Beijing XIAOCHENG Technology Stock's P/S exceeds that of its industry peers. 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Beijing XIAOCHENG Technology Stock's P/S?

The strong share price surge has lead to Beijing XIAOCHENG Technology Stock's P/S soaring as well. 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.

Our examination of Beijing XIAOCHENG Technology Stock 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Beijing XIAOCHENG Technology Stock with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Beijing XIAOCHENG Technology Stock's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.