Risks Still Elevated At These Prices As Fujian Foxit Software Development Joint Stock Co., Ltd. (SHSE:688095) Shares Dive 26%

The Fujian Foxit Software Development Joint Stock Co., Ltd. (SHSE:688095) share price has fared very poorly over the last month, falling by a substantial 26%. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

In spite of the heavy fall in price, Fujian Foxit Software Development's price-to-sales (or "P/S") ratio of 6.4x might still make it look like a sell right now compared to the wider Software industry in China, where around half of the companies have P/S ratios below 4.7x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Fujian Foxit Software Development

How Fujian Foxit Software Development Has Been Performing

Fujian Foxit Software Development certainly has been doing a good job lately as it's been growing revenue more 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 Fujian Foxit Software Development's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Fujian Foxit Software Development?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.7% last year. Pleasingly, revenue has also lifted 32% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 30% growth forecast for the broader industry.

With this information, we find it concerning that Fujian Foxit Software Development is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Fujian Foxit Software Development's P/S

Fujian Foxit Software Development's P/S remain high even after its stock plunged. 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.

It comes as a surprise to see Fujian Foxit Software Development trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Fujian Foxit Software Development you should know about.

If these risks are making you reconsider your opinion on Fujian Foxit Software Development, 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.