Revenues Not Telling The Story For Zhejiang Whyis Technology Co.,Ltd. (SZSE:301218) After Shares Rise 55%

Zhejiang Whyis Technology Co.,Ltd. (SZSE:301218) shareholders would be excited to see that the share price has had a great month, posting a 55% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

After such a large jump in price, Zhejiang Whyis TechnologyLtd may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 5.6x, since almost half of all companies in the IT in China have P/S ratios under 4.3x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Zhejiang Whyis TechnologyLtd

What Does Zhejiang Whyis TechnologyLtd's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Zhejiang Whyis TechnologyLtd has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Zhejiang Whyis TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Zhejiang Whyis TechnologyLtd would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 35%. Revenue has also lifted 8.2% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Zhejiang Whyis TechnologyLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Zhejiang Whyis TechnologyLtd's P/S

The large bounce in Zhejiang Whyis TechnologyLtd's shares has lifted the company's P/S handsomely. 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.

The fact that Zhejiang Whyis TechnologyLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Zhejiang Whyis TechnologyLtd (1 is potentially serious!) that you should be aware of before investing here.

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.