Beijing E-Techstar Co.,Ltd.'s (SZSE:300513) Share Price Boosted 30% But Its Business Prospects Need A Lift Too

Beijing E-Techstar Co.,Ltd. (SZSE:300513) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Although its price has surged higher, Beijing E-TechstarLtd's price-to-sales (or "P/S") ratio of 2.3x might still make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 5.8x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Beijing E-TechstarLtd

How Has Beijing E-TechstarLtd Performed Recently?

Beijing E-TechstarLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Revenue Growth Forecasted For Beijing E-TechstarLtd?

Beijing E-TechstarLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than 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 8.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% 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.

Turning to the outlook, the next year should generate growth of 2.1% as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

With this information, we can see why Beijing E-TechstarLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Shares in Beijing E-TechstarLtd have risen appreciably however, its P/S is still subdued. 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.

We've established that Beijing E-TechstarLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Beijing E-TechstarLtd with six simple checks.

If you're unsure about the strength of Beijing E-TechstarLtd'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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