What 360 Security Technology Inc.'s (SHSE:601360) P/S Is Not Telling You

With a price-to-sales (or "P/S") ratio of 5.9x 360 Security Technology Inc. (SHSE:601360) may be sending bearish signals at the moment, given that almost half of all Software companies in China have P/S ratios under 4.6x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for 360 Security Technology

How 360 Security Technology Has Been Performing

360 Security Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 360 Security Technology.

Is There Enough Revenue Growth Forecasted For 360 Security Technology?

In order to justify its P/S ratio, 360 Security Technology would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 1.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 26% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

With this information, we find it concerning that 360 Security Technology is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On 360 Security Technology's P/S

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for 360 Security Technology, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about this 1 warning sign we've spotted with 360 Security Technology.

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).

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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.

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