Beijing Kingsoft Office Software, Inc.'s (SHSE:688111) Price Is Out Of Tune With Revenues

Beijing Kingsoft Office Software, Inc.'s (SHSE:688111) price-to-sales (or "P/S") ratio of 29.6x 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 6.5x. 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.

See our latest analysis for Beijing Kingsoft Office Software

How Has Beijing Kingsoft Office Software Performed Recently?

Beijing Kingsoft Office Software certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Kingsoft Office Software.

Is There Enough Revenue Growth Forecasted For Beijing Kingsoft Office Software?

Beijing Kingsoft Office Software's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen an excellent 57% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 23% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 24% per year, which is not materially different.

With this in consideration, we find it intriguing that Beijing Kingsoft Office Software's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

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

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.

Given Beijing Kingsoft Office Software's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Beijing Kingsoft Office Software with six simple checks on some of these key factors.

If you're unsure about the strength of Beijing Kingsoft Office Software's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.