Stock Analysis

Revenues Not Telling The Story For Beijing Trust&Far Technology CO.,LTD (SZSE:300231) After Shares Rise 34%

SZSE:300231
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Despite an already strong run, Beijing Trust&Far Technology CO.,LTD (SZSE:300231) shares have been powering on, with a gain of 34% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Beijing Trust&Far TechnologyLTD's price-to-sales (or "P/S") ratio of 4x right now seems quite "middle-of-the-road" compared to the IT industry in China, where the median P/S ratio is around 4.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Beijing Trust&Far TechnologyLTD

ps-multiple-vs-industry
SZSE:300231 Price to Sales Ratio vs Industry December 2nd 2024

What Does Beijing Trust&Far TechnologyLTD's P/S Mean For Shareholders?

For example, consider that Beijing Trust&Far TechnologyLTD's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing Trust&Far TechnologyLTD's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Beijing Trust&Far TechnologyLTD's 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 24%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 20% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Beijing Trust&Far TechnologyLTD's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Beijing Trust&Far TechnologyLTD's P/S?

Its shares have lifted substantially and now Beijing Trust&Far TechnologyLTD's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Beijing Trust&Far TechnologyLTD revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Beijing Trust&Far TechnologyLTD is showing 5 warning signs in our investment analysis, and 3 of those make us uncomfortable.

If these risks are making you reconsider your opinion on Beijing Trust&Far TechnologyLTD, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're here to simplify it.

Discover if Beijing Trust&Far TechnologyLTD might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.