Jilin University Zhengyuan Information Technologies Co., Ltd. (SZSE:003029) Stocks Shoot Up 25% But Its P/S Still Looks Reasonable

Jilin University Zhengyuan Information Technologies Co., Ltd. (SZSE:003029) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.5% in the last twelve months.

Since its price has surged higher, given around half the companies in China's Software industry have price-to-sales ratios (or "P/S") below 5.2x, you may consider Jilin University Zhengyuan Information Technologies as a stock to avoid entirely with its 11x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Jilin University Zhengyuan Information Technologies

How Jilin University Zhengyuan Information Technologies Has Been Performing

While the industry has experienced revenue growth lately, Jilin University Zhengyuan Information Technologies' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Jilin University Zhengyuan Information Technologies will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Jilin University Zhengyuan Information Technologies?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Jilin University Zhengyuan Information Technologies' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 33%. This means it has also seen a slide in revenue over the longer-term as revenue is down 47% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 230% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

In light of this, it's understandable that Jilin University Zhengyuan Information Technologies' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Jilin University Zhengyuan Information Technologies' P/S Mean For Investors?

Jilin University Zhengyuan Information Technologies' P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jilin University Zhengyuan Information Technologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Jilin University Zhengyuan Information Technologies that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.