There's No Escaping Sangfor Technologies Inc.'s (SZSE:300454) Muted Revenues Despite A 26% Share Price Rise

Sangfor Technologies Inc. (SZSE:300454) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

In spite of the firm bounce in price, Sangfor Technologies may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.8x, since almost half of all companies in the Software industry in China have P/S ratios greater than 7x and even P/S higher than 13x 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.

Check out our latest analysis for Sangfor Technologies

What Does Sangfor Technologies' P/S Mean For Shareholders?

Recent revenue growth for Sangfor Technologies has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Sangfor Technologies will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sangfor Technologies.

How Is Sangfor Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Sangfor Technologies would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 14% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 28%, which is noticeably more attractive.

With this information, we can see why Sangfor Technologies is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Sangfor Technologies' 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 established that Sangfor Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Sangfor Technologies has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.