Why Investors Shouldn't Be Surprised By Bonree Data Technology Co., Ltd's (SHSE:688229) 46% Share Price Surge

Bonree Data Technology Co., Ltd (SHSE:688229) shares have had a really impressive month, gaining 46% after a shaky period beforehand. The annual gain comes to 116% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in China's Software industry have price-to-sales ratios (or "P/S") below 7.3x, you may consider Bonree Data Technology as a stock to avoid entirely with its 17.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Bonree Data Technology

What Does Bonree Data Technology's Recent Performance Look Like?

Recent times have been advantageous for Bonree Data Technology as its revenues have been rising faster 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.

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

How Is Bonree Data Technology's Revenue Growth Trending?

Bonree Data Technology'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Still, lamentably revenue has fallen 4.4% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 39% over the next year. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

With this information, we can see why Bonree Data Technology is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to Bonree Data Technology's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Bonree Data Technology shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Bonree Data Technology 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.