Montnets Cloud Technology Group Co., Ltd. (SZSE:002123) Shares Fly 33% But Investors Aren't Buying For Growth

Despite an already strong run, Montnets Cloud Technology Group Co., Ltd. (SZSE:002123) shares have been powering on, with a gain of 33% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

In spite of the firm bounce in price, Montnets Cloud Technology Group's price-to-sales (or "P/S") ratio of 1.7x might still make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 6.6x and even P/S above 12x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Montnets Cloud Technology Group

How Has Montnets Cloud Technology Group Performed Recently?

Montnets Cloud Technology Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Montnets Cloud Technology Group will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Montnets Cloud Technology Group?

Montnets Cloud Technology Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. The latest three year period has also seen an excellent 88% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 17% over the next year. Meanwhile, the rest of the industry is forecast to expand by 33%, which is noticeably more attractive.

With this information, we can see why Montnets Cloud Technology Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, Montnets Cloud Technology Group's P/S still trails the rest of the industry. 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.

We've established that Montnets Cloud Technology Group 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Montnets Cloud Technology Group with six simple checks.

If you're unsure about the strength of Montnets Cloud Technology Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.