Why Investors Shouldn't Be Surprised By Beijing Kingsoft Office Software, Inc.'s (SHSE:688111) 31% Share Price Surge

Those holding Beijing Kingsoft Office Software, Inc. (SHSE:688111) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.9% over the last year.

After such a large jump in price, when almost half of the companies in China's Software industry have price-to-sales ratios (or "P/S") below 5.1x, you may consider Beijing Kingsoft Office Software as a stock not worth researching with its 28.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Beijing Kingsoft Office Software

What Does Beijing Kingsoft Office Software's Recent Performance Look Like?

Beijing Kingsoft Office Software 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.

Want the full picture on analyst estimates for the company? Then our free report on Beijing Kingsoft Office Software will help you uncover what's on the horizon.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Pleasingly, revenue has also lifted 102% in aggregate from three years ago, thanks to the last 12 months of growth. 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 31% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 27% each year, which is noticeably less attractive.

With this information, we can see why Beijing Kingsoft Office Software is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Beijing Kingsoft Office Software's P/S?

Beijing Kingsoft Office Software's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Beijing Kingsoft Office Software's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. 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 these risks are making you reconsider your opinion on Beijing Kingsoft Office Software, 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.