Investors Appear Satisfied With Transwarp Technology (Shanghai) Co.,Ltd.'s (SHSE:688031) Prospects As Shares Rocket 28%

Despite an already strong run, Transwarp Technology (Shanghai) Co.,Ltd. (SHSE:688031) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Transwarp Technology (Shanghai)Ltd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 12.7x, considering almost half the companies in China's Software industry have P/S ratios below 7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Transwarp Technology (Shanghai)Ltd

How Transwarp Technology (Shanghai)Ltd Has Been Performing

With revenue growth that's superior to most other companies of late, Transwarp Technology (Shanghai)Ltd has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Transwarp Technology (Shanghai)Ltd.

Is There Enough Revenue Growth Forecasted For Transwarp Technology (Shanghai)Ltd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Transwarp Technology (Shanghai)Ltd's to be considered reasonable.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Pleasingly, revenue has also lifted 44% 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 done a great job of growing revenues over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 79% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 32%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Transwarp Technology (Shanghai)Ltd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Transwarp Technology (Shanghai)Ltd's P/S Mean For Investors?

Shares in Transwarp Technology (Shanghai)Ltd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Transwarp Technology (Shanghai)Ltd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Transwarp Technology (Shanghai)Ltd (1 is concerning) you should be aware of.

If these risks are making you reconsider your opinion on Transwarp Technology (Shanghai)Ltd, 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.