Revenues Not Telling The Story For NavInfo Co., Ltd. (SZSE:002405) After Shares Rise 29%

Those holding NavInfo Co., Ltd. (SZSE:002405) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that NavInfo's price-to-sales (or "P/S") ratio of 4.8x right now seems quite "middle-of-the-road" compared to the Software industry in China, where the median P/S ratio is around 5.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for NavInfo

What Does NavInfo's P/S Mean For Shareholders?

NavInfo certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is NavInfo's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like NavInfo's to be considered reasonable.

Retrospectively, the last year delivered a decent 9.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 56% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 13% per annum over the next three years. With the industry predicted to deliver 27% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that NavInfo is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does NavInfo's P/S Mean For Investors?

NavInfo appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our look at the analysts forecasts of NavInfo's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for NavInfo with six simple checks.

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.