Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang's (SZSE:300469) 27% Price Boost Is Out Of Tune With Revenues

Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 17% over that time.

Following the firm bounce in price, given around half 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 to avoid entirely with its 15.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang

How Transportation Telecommunication & Information DevelopmentLtd.Zhejiang Has Been Performing

For example, consider that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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 13%. This means it has also seen a slide in revenue over the longer-term as revenue is down 52% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 20% shows it's an unpleasant look.

With this information, we find it concerning that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.

What Does Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S Mean For Investors?

Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Transportation Telecommunication & Information DevelopmentLtd.Zhejiang revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 2 warning signs for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.