Subdued Growth No Barrier To Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) With Shares Advancing 42%

Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) shareholders would be excited to see that the share price has had a great month, posting a 42% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Since its price has surged higher, when almost half of the companies in China's IT industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider Transportation Telecommunication & Information DevelopmentLtd.Zhejiang as a stock not worth researching with its 16x 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.

Check out our latest analysis for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang

What Does Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Transportation Telecommunication & Information DevelopmentLtd.Zhejiang over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Transportation Telecommunication & Information DevelopmentLtd.Zhejiang will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Transportation Telecommunication & Information DevelopmentLtd.Zhejiang would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 15%. As a result, revenue from three years ago have also fallen 63% overall. 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 28% shows it's an unpleasant look.

With this in mind, we find it worrying that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S exceeds that of its industry peers. 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.

The Key Takeaway

Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. 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. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 2 warning signs for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang that you need to take into consideration.

If you're unsure about the strength of Transportation Telecommunication & Information DevelopmentLtd.Zhejiang'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.

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