Koal Software Co., Ltd.'s (SHSE:603232) Shares Leap 30% Yet They're Still Not Telling The Full Story

Koal Software Co., Ltd. (SHSE:603232) shareholders have had their patience rewarded with a 30% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 4.6% isn't as attractive.

Although its price has surged higher, it's still not a stretch to say that Koal Software's price-to-sales (or "P/S") ratio of 4.9x right now seems quite "middle-of-the-road" compared to the Software industry in China, where the median P/S ratio is around 5.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Koal Software

What Does Koal Software's Recent Performance Look Like?

Koal Software certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Koal Software's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Revenue has also lifted 16% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 32% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 27%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Koal Software's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Koal Software's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Despite enticing revenue growth figures that outpace the industry, Koal Software's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Koal Software that you should be aware of.

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.