Investors Aren't Buying ArcherMind Technology (Nanjing) Co., Ltd.'s (SZSE:300598) Revenues

With a price-to-sales (or "P/S") ratio of 6.1x 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 8.1x and even P/S higher than 15x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for ArcherMind Technology (Nanjing)

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

The recent revenue growth at ArcherMind Technology (Nanjing) would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

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.

Is There Any Revenue Growth Forecasted For ArcherMind Technology (Nanjing)?

There's an inherent assumption that a company should underperform the industry for P/S ratios like ArcherMind Technology (Nanjing)'s to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.2% last year. Pleasingly, revenue has also lifted 49% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that ArcherMind Technology (Nanjing)'s P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From ArcherMind Technology (Nanjing)'s P/S?

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.

Our examination of ArcherMind Technology (Nanjing) confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 2 warning signs for ArcherMind Technology (Nanjing) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.