Revenues Tell The Story For Beijing eGOVA Co,. Ltd (SZSE:300075) As Its Stock Soars 33%

Beijing eGOVA Co,. Ltd (SZSE:300075) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

After such a large jump in price, Beijing eGOVA Co may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 9.8x, since almost half of all companies in the IT industry in China have P/S ratios under 4.3x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Beijing eGOVA Co

How Beijing eGOVA Co Has Been Performing

While the industry has experienced revenue growth lately, Beijing eGOVA Co's 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.. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

How Is Beijing eGOVA Co's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Beijing eGOVA Co's is when the company's growth is on track to outshine the industry decidedly.

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 35%. As a result, revenue from three years ago have also fallen 36% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 48% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 20%, which is noticeably less attractive.

With this information, we can see why Beijing eGOVA Co is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Beijing eGOVA Co's P/S?

The strong share price surge has lead to Beijing eGOVA Co's P/S soaring as well. 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 Beijing eGOVA Co 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 1 warning sign for Beijing eGOVA Co you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.