There's Reason For Concern Over Shenzhen Ysstech Info-Tech Co.,Ltd's (SZSE:300377) Massive 70% Price Jump

Shenzhen Ysstech Info-Tech Co.,Ltd (SZSE:300377) shareholders have had their patience rewarded with a 70% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 9.0% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Shenzhen Ysstech Info-TechLtd's price-to-sales (or "P/S") ratio of 4.5x is worth a mention when the median P/S in China's Software industry is similar at about 4.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shenzhen Ysstech Info-TechLtd

How Has Shenzhen Ysstech Info-TechLtd Performed Recently?

It looks like revenue growth has deserted Shenzhen Ysstech Info-TechLtd recently, which is not something to boast about. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Ysstech Info-TechLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Shenzhen Ysstech Info-TechLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenzhen Ysstech Info-TechLtd's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 69% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Shenzhen Ysstech Info-TechLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

Shenzhen Ysstech Info-TechLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We've established that Shenzhen Ysstech Info-TechLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Shenzhen Ysstech Info-TechLtd (2 shouldn't be ignored!) that you need to be mindful of.

If you're unsure about the strength of Shenzhen Ysstech Info-TechLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.