Revenues Not Telling The Story For Bringspring Science and Technology Co., Ltd. (SZSE:300290) After Shares Rise 27%

Bringspring Science and Technology Co., Ltd. (SZSE:300290) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in China's IT industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Bringspring Science and Technology as a stock to avoid entirely with its 8.6x 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 Bringspring Science and Technology

What Does Bringspring Science and Technology's P/S Mean For Shareholders?

The recent revenue growth at Bringspring Science and Technology would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Bringspring Science and Technology's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Bringspring Science and Technology?

In order to justify its P/S ratio, Bringspring Science and Technology would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.8%. However, this wasn't enough as the latest three year period has seen an unpleasant 7.5% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 43% shows it's an unpleasant look.

With this information, we find it concerning that Bringspring Science and Technology is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very 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 Does Bringspring Science and Technology's P/S Mean For Investors?

Bringspring Science and Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Bringspring Science and Technology revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Bringspring Science and Technology is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

If you're unsure about the strength of Bringspring Science and Technology'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.