There's Reason For Concern Over BEIJING CERTIFICATE AUTHORITY Co.,Ltd.'s (SZSE:300579) Massive 36% Price Jump

BEIJING CERTIFICATE AUTHORITY Co.,Ltd. (SZSE:300579) shareholders are no doubt pleased to see that the share price has bounced 36% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about BEIJING CERTIFICATE AUTHORITYLtd's P/S ratio of 5.5x, since the median price-to-sales (or "P/S") ratio for the Software industry in China is also close to 5.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for BEIJING CERTIFICATE AUTHORITYLtd

How Has BEIJING CERTIFICATE AUTHORITYLtd Performed Recently?

The recent revenue growth at BEIJING CERTIFICATE AUTHORITYLtd would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on BEIJING CERTIFICATE AUTHORITYLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on BEIJING CERTIFICATE AUTHORITYLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, BEIJING CERTIFICATE AUTHORITYLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. The latest three year period has also seen an excellent 41% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 33% shows it's noticeably less attractive.

With this in mind, we find it intriguing that BEIJING CERTIFICATE AUTHORITYLtd's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

Its shares have lifted substantially and now BEIJING CERTIFICATE AUTHORITYLtd's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of BEIJING CERTIFICATE AUTHORITYLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

And what about other risks? Every company has them, and we've spotted 2 warning signs for BEIJING CERTIFICATE AUTHORITYLtd (of which 1 is concerning!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.