Beijing eGOVA Co,. Ltd (SZSE:300075) Stocks Shoot Up 25% But Its P/S Still Looks Reasonable

Beijing eGOVA Co,. Ltd (SZSE:300075) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 44%.

Following the firm bounce in price, Beijing eGOVA Co may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 14.2x, since almost half of all companies in the IT industry in China have P/S ratios under 5.5x and even P/S lower than 2x are not unusual. 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 Beijing eGOVA Co

What Does Beijing eGOVA Co's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Beijing eGOVA Co's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. 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 Beijing eGOVA Co will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Beijing eGOVA Co's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than 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 42%. This means it has also seen a slide in revenue over the longer-term as revenue is down 49% 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 one analyst covering the company suggest revenue should grow by 87% over the next year. With the industry only predicted to deliver 17%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Beijing eGOVA Co'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 Final Word

Beijing eGOVA Co's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Beijing eGOVA Co maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Beijing eGOVA Co with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Beijing eGOVA Co's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.