Further Upside For Beijing Sinnet Technology Co.,Ltd (SZSE:300383) Shares Could Introduce Price Risks After 27% Bounce

Despite an already strong run, Beijing Sinnet Technology Co.,Ltd (SZSE:300383) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Beijing Sinnet TechnologyLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.1x, since almost half of all companies in the IT industry in China have P/S ratios greater than 5.4x and even P/S higher than 12x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Beijing Sinnet TechnologyLtd

What Does Beijing Sinnet TechnologyLtd's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Beijing Sinnet TechnologyLtd has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Beijing Sinnet TechnologyLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Beijing Sinnet TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Turning to the outlook, the next year should generate growth of 15% as estimated by the nine analysts watching the company. With the industry predicted to deliver 17% growth , the company is positioned for a comparable revenue result.

With this information, we find it odd that Beijing Sinnet TechnologyLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Beijing Sinnet TechnologyLtd's P/S

The latest share price surge wasn't enough to lift Beijing Sinnet TechnologyLtd's P/S close to the industry median. 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 seen that Beijing Sinnet TechnologyLtd currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 2 warning signs for Beijing Sinnet TechnologyLtd that 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.