Doushen (Beijing) Education & Technology INC. (SZSE:300010) Looks Just Right With A 83% Price Jump

Doushen (Beijing) Education & Technology INC. (SZSE:300010) shares have continued their recent momentum with a 83% gain in the last month alone. The last month tops off a massive increase of 284% in the last year.

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 7x, you may consider Doushen (Beijing) Education & Technology as a stock to avoid entirely with its 23x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Doushen (Beijing) Education & Technology

What Does Doushen (Beijing) Education & Technology's Recent Performance Look Like?

Doushen (Beijing) Education & Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Doushen (Beijing) Education & Technology's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, Doushen (Beijing) Education & Technology would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. The last three years don't look nice either as the company has shrunk revenue by 23% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 45% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 32%, which is noticeably less attractive.

In light of this, it's understandable that Doushen (Beijing) Education & Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Doushen (Beijing) Education & Technology's P/S

Doushen (Beijing) Education & Technology's 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.

Our look into Doushen (Beijing) Education & Technology shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Doushen (Beijing) Education & Technology you should be aware of.

If you're unsure about the strength of Doushen (Beijing) Education & 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.