Shenzhen Tianyuan DIC Information Technology Co., Ltd.'s (SZSE:300047) Price Is Right But Growth Is Lacking After Shares Rocket 31%

The Shenzhen Tianyuan DIC Information Technology Co., Ltd. (SZSE:300047) share price has done very well over the last month, posting an excellent gain of 31%. Taking a wider view, although not as strong as the last month, the full year gain of 10% is also fairly reasonable.

In spite of the firm bounce in price, Shenzhen Tianyuan DIC Information Technology may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Software industry in China have P/S ratios greater than 4.2x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Shenzhen Tianyuan DIC Information Technology

How Has Shenzhen Tianyuan DIC Information Technology Performed Recently?

The revenue growth achieved at Shenzhen Tianyuan DIC Information Technology over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Tianyuan DIC Information Technology will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Shenzhen Tianyuan DIC Information Technology?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Shenzhen Tianyuan DIC Information Technology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

In light of this, it's understandable that Shenzhen Tianyuan DIC Information Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Shenzhen Tianyuan DIC Information Technology's P/S

Shenzhen Tianyuan DIC Information Technology's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

In line with expectations, Shenzhen Tianyuan DIC Information Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Shenzhen Tianyuan DIC Information Technology (2 are a bit unpleasant) you should be aware of.

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.