IReader Technology Co., Ltd.'s (SHSE:603533) Shares Bounce 33% But Its Business Still Trails The Industry

IReader Technology Co., Ltd. (SHSE:603533) shares have continued their recent momentum with a 33% gain in the last month alone. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, IReader Technology's price-to-sales (or "P/S") ratio of 4.3x might still make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 7.6x and even P/S above 15x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for IReader Technology

What Does IReader Technology's Recent Performance Look Like?

We'd have to say that with no tangible growth over the last year, IReader Technology's revenue has been unimpressive. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

IReader Technology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to grow by 31% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why IReader Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite IReader Technology's share price climbing recently, its P/S still lags most other companies. 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 IReader Technology confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for IReader Technology with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on IReader Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.