Market Might Still Lack Some Conviction On Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) Even After 44% Share Price Boost

Despite an already strong run, Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) shares have been powering on, with a gain of 44% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Sichuan Jiuyuan Yinhai Software.Co.Ltd's price-to-sales (or "P/S") ratio of 8.1x right now seems quite "middle-of-the-road" compared to the Software industry in China, where the median P/S ratio is around 7.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Sichuan Jiuyuan Yinhai Software.Co.Ltd

What Does Sichuan Jiuyuan Yinhai Software.Co.Ltd's Recent Performance Look Like?

Sichuan Jiuyuan Yinhai Software.Co.Ltd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sichuan Jiuyuan Yinhai Software.Co.Ltd.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Sichuan Jiuyuan Yinhai Software.Co.Ltd would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. As a result, revenue from three years ago have also fallen 5.7% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 36% over the next year. With the industry only predicted to deliver 33%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Sichuan Jiuyuan Yinhai Software.Co.Ltd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Sichuan Jiuyuan Yinhai Software.Co.Ltd has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.