The Market Lifts China Transinfo Technology Co., Ltd (SZSE:002373) Shares 34% But It Can Do More

China Transinfo Technology Co., Ltd (SZSE:002373) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, China Transinfo Technology may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the IT industry in China have P/S ratios greater than 5.8x and even P/S higher than 13x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for China Transinfo Technology

What Does China Transinfo Technology's Recent Performance Look Like?

China Transinfo Technology could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For China Transinfo Technology?

China Transinfo Technology'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 7.3% last year. Still, lamentably revenue has fallen 23% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 17% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17%, which is not materially different.

With this information, we find it odd that China Transinfo Technology is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does China Transinfo Technology's P/S Mean For Investors?

China Transinfo Technology's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

It looks to us like the P/S figures for China Transinfo Technology remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for China Transinfo Technology with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of China Transinfo Technology'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.