Little Excitement Around Newland Digital Technology Co.,Ltd.'s (SZSE:000997) Revenues

With a price-to-sales (or "P/S") ratio of 1.7x Newland Digital Technology Co.,Ltd. (SZSE:000997) may be sending very bullish signals at the moment, given that almost half of all the Software companies in China have P/S ratios greater than 4.6x and even P/S higher than 8x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Newland Digital TechnologyLtd

What Does Newland Digital TechnologyLtd's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Newland Digital TechnologyLtd has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Newland Digital TechnologyLtd.

Is There Any Revenue Growth Forecasted For Newland Digital TechnologyLtd?

In order to justify its P/S ratio, Newland Digital TechnologyLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 8.2% gain to the company's revenues. Revenue has also lifted 8.3% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 22% over the next year. With the industry predicted to deliver 27% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Newland Digital TechnologyLtd is trading at a P/S lower than the industry. 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

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Newland Digital TechnologyLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

You always need to take note of risks, for example - Newland Digital TechnologyLtd has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com