Asiainfo Security Technologies Co.,Ltd. (SHSE:688225) Shares Fly 30% But Investors Aren't Buying For Growth

Despite an already strong run, Asiainfo Security Technologies Co.,Ltd. (SHSE:688225) shares have been powering on, with a gain of 30% in the last thirty days. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Asiainfo Security TechnologiesLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.9x, since almost half of all companies in the Software industry in China have P/S ratios greater than 6.9x and even P/S higher than 13x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Asiainfo Security TechnologiesLtd

How Asiainfo Security TechnologiesLtd Has Been Performing

There hasn't been much to differentiate Asiainfo Security TechnologiesLtd's and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Asiainfo Security TechnologiesLtd will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Asiainfo Security TechnologiesLtd.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Asiainfo Security TechnologiesLtd would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 23% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 28% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 32%, which is noticeably more attractive.

In light of this, it's understandable that Asiainfo Security TechnologiesLtd's 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 Key Takeaway

Asiainfo Security TechnologiesLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Asiainfo Security TechnologiesLtd 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Asiainfo Security TechnologiesLtd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.