Market Cool On Jiangsu Hoperun Software Co., Ltd.'s (SZSE:300339) Revenues

It's not a stretch to say that Jiangsu Hoperun Software Co., Ltd.'s (SZSE:300339) price-to-sales (or "P/S") ratio of 4.9x right now seems quite "middle-of-the-road" for companies in the Software industry in China, where the median P/S ratio is around 4.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Jiangsu Hoperun Software

How Jiangsu Hoperun Software Has Been Performing

Jiangsu Hoperun Software's revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Jiangsu Hoperun Software will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think Jiangsu Hoperun Software's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Jiangsu Hoperun Software?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Jiangsu Hoperun Software's to be considered reasonable.

Retrospectively, the last year delivered a decent 4.3% gain to the company's revenues. The latest three year period has also seen a 19% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 31% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 28%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Jiangsu Hoperun Software's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

We've established that Jiangsu Hoperun Software currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Jiangsu Hoperun Software, and understanding should be part of your investment process.

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.

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