What You Can Learn From Beijing Vastdata Technology Co., Ltd.'s (SHSE:603138) P/S After Its 25% Share Price Crash

The Beijing Vastdata Technology Co., Ltd. (SHSE:603138) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Although its price has dipped substantially, Beijing Vastdata Technology's price-to-sales (or "P/S") ratio of 11x might still make it look like a strong sell right now compared to other companies in the IT industry in China, where around half of the companies have P/S ratios below 4.5x and even P/S below 2x 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 Vastdata Technology

How Beijing Vastdata Technology Has Been Performing

With revenue growth that's superior to most other companies of late, Beijing Vastdata Technology has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Beijing Vastdata Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Beijing Vastdata Technology?

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

Retrospectively, the last year delivered an exceptional 37% 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 8.2% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 65% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 18% growth forecast for the broader industry.

In light of this, it's understandable that Beijing Vastdata Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Even after such a strong price drop, Beijing Vastdata Technology's P/S still exceeds the industry median significantly. 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 Vastdata Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Beijing Vastdata Technology you should be aware of.

If you're unsure about the strength of Beijing Vastdata Technology'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.