Beijing Join-Cheer Software Co., Ltd. (SZSE:002279) Looks Inexpensive After Falling 30% But Perhaps Not Attractive Enough

Beijing Join-Cheer Software Co., Ltd. (SZSE:002279) shares have had a horrible month, losing 30% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 7.8% over that longer period.

Following the heavy fall in price, Beijing Join-Cheer Software may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.1x, considering 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 aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Beijing Join-Cheer Software

What Does Beijing Join-Cheer Software's Recent Performance Look Like?

Recent times have been quite advantageous for Beijing Join-Cheer Software as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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 earnings, revenue and cash flow for the company? Then our free report on Beijing Join-Cheer Software will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Beijing Join-Cheer Software's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. The latest three year period has also seen an excellent 68% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Beijing Join-Cheer Software is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Beijing Join-Cheer Software's P/S Mean For Investors?

Beijing Join-Cheer Software's P/S looks about as weak as its stock price lately. 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.

As we suspected, our examination of Beijing Join-Cheer Software revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Having said that, be aware Beijing Join-Cheer Software is showing 1 warning sign in our investment analysis, you should know about.

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.