What You Can Learn From Zwsoft Co.,Ltd.'s (SHSE:688083) P/S

Zwsoft Co.,Ltd.'s (SHSE:688083) price-to-sales (or "P/S") ratio of 14.4x may look like a poor investment opportunity when you consider close to half the companies in the Software industry in China have P/S ratios below 5.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for ZwsoftLtd

What Does ZwsoftLtd's P/S Mean For Shareholders?

Recent times have been advantageous for ZwsoftLtd as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think ZwsoftLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is ZwsoftLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like ZwsoftLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The latest three year period has also seen an excellent 77% 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.

Looking ahead now, revenue is anticipated to climb by 41% each year during the coming three years according to the twelve analysts following the company. That's shaping up to be materially higher than the 27% each year growth forecast for the broader industry.

With this information, we can see why ZwsoftLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into ZwsoftLtd shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for ZwsoftLtd 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.