Take Care Before Jumping Onto Piesat Information Technology Co., Ltd. (SHSE:688066) Even Though It's 26% Cheaper

Unfortunately for some shareholders, the Piesat Information Technology Co., Ltd. (SHSE:688066) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 80% share price decline.

Since its price has dipped substantially, Piesat Information Technology's price-to-sales (or "P/S") ratio of 2.1x might make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 4.4x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Piesat Information Technology

How Has Piesat Information Technology Performed Recently?

While the industry has experienced revenue growth lately, Piesat Information Technology's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Piesat Information Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Piesat Information Technology would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. Even so, admirably revenue has lifted 96% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 62% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 28%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Piesat Information Technology's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Having almost fallen off a cliff, Piesat Information Technology's share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems Piesat Information Technology currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for Piesat Information Technology (1 can't be ignored!) that you need to take into consideration.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com