Beijing Baolande Software Corporation (SHSE:688058) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

Beijing Baolande Software Corporation (SHSE:688058) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

In spite of the heavy fall in price, Beijing Baolande Software may still be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 5.5x, since almost half of all companies in the Software in China have P/S ratios under 4.5x and even P/S lower than 2x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Beijing Baolande Software

How Has Beijing Baolande Software Performed Recently?

Beijing Baolande Software has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing Baolande Software's earnings, revenue and cash flow.

How Is Beijing Baolande Software's Revenue Growth Trending?

In order to justify its P/S ratio, Beijing Baolande Software would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an excellent 67% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 30% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Beijing Baolande Software is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Beijing Baolande Software's P/S Mean For Investors?

Despite the recent share price weakness, Beijing Baolande Software's P/S remains higher than most other companies in the industry. 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.

The fact that Beijing Baolande Software currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Beijing Baolande Software that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.