Improved Revenues Required Before ArcherMind Technology (Nanjing) Co., Ltd. (SZSE:300598) Shares Find Their Feet

With a price-to-sales (or "P/S") ratio of 3.4x ArcherMind Technology (Nanjing) Co., Ltd. (SZSE:300598) may be sending bullish signals at the moment, given that almost half of all the Software companies in China have P/S ratios greater than 4.4x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for ArcherMind Technology (Nanjing)

What Does ArcherMind Technology (Nanjing)'s Recent Performance Look Like?

It looks like revenue growth has deserted ArcherMind Technology (Nanjing) recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on ArcherMind Technology (Nanjing) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for ArcherMind Technology (Nanjing), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is ArcherMind Technology (Nanjing)'s Revenue Growth Trending?

In order to justify its P/S ratio, ArcherMind Technology (Nanjing) would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 73% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that ArcherMind Technology (Nanjing)'s P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does ArcherMind Technology (Nanjing)'s P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of ArcherMind Technology (Nanjing) revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for ArcherMind Technology (Nanjing) that you should be aware of.

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.

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