Market Cool On Asiainfo Security Technologies Co.,Ltd.'s (SHSE:688225) Revenues Pushing Shares 25% Lower

Asiainfo Security Technologies Co.,Ltd. (SHSE:688225) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Following the heavy fall in price, Asiainfo Security TechnologiesLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.9x, since almost half of all companies in the Software industry in China have P/S ratios greater than 6.2x and even P/S higher than 11x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Asiainfo Security TechnologiesLtd

What Does Asiainfo Security TechnologiesLtd's Recent Performance Look Like?

There hasn't been much to differentiate Asiainfo Security TechnologiesLtd's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

How Is Asiainfo Security TechnologiesLtd's Revenue Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. 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. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 29%, which is not materially different.

In light of this, it's peculiar that Asiainfo Security TechnologiesLtd's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Asiainfo Security TechnologiesLtd's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that Asiainfo Security TechnologiesLtd currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Asiainfo Security TechnologiesLtd you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.