Primeton Information Technologies, Inc. (SHSE:688118) Surges 42% Yet Its Low P/S Is No Reason For Excitement

Primeton Information Technologies, Inc. (SHSE:688118) shares have continued their recent momentum with a 42% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

In spite of the firm bounce in price, Primeton Information Technologies may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.5x, considering almost half of all companies in the Software industry in China have P/S ratios greater than 7.8x and even P/S higher than 13x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Primeton Information Technologies

How Primeton Information Technologies Has Been Performing

While the industry has experienced revenue growth lately, Primeton Information Technologies' 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. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Primeton Information Technologies' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Primeton Information Technologies' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. As a result, revenue from three years ago have also fallen 3.7% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 24% as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 33% growth forecast for the broader industry.

In light of this, it's understandable that Primeton Information Technologies' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Primeton Information Technologies' P/S

Primeton Information Technologies' stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Primeton Information Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Primeton Information Technologies that we have uncovered.

If these risks are making you reconsider your opinion on Primeton Information Technologies, 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.