A Piece Of The Puzzle Missing From iSoftStone Information Technology (Group) Co., Ltd.'s (SZSE:301236) 27% Share Price Climb

iSoftStone Information Technology (Group) Co., Ltd. (SZSE:301236) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

Although its price has surged higher, iSoftStone Information Technology (Group)'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 IT industry in China, where around half of the companies have P/S ratios above 4.7x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for iSoftStone Information Technology (Group)

How iSoftStone Information Technology (Group) Has Been Performing

Recent times have been advantageous for iSoftStone Information Technology (Group) as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think iSoftStone Information Technology (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, iSoftStone Information Technology (Group) would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. The latest three year period has also seen an excellent 62% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 20% as estimated by the six analysts watching the company. That's shaping up to be similar to the 19% growth forecast for the broader industry.

With this in consideration, we find it intriguing that iSoftStone Information Technology (Group)'s P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Shares in iSoftStone Information Technology (Group) have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've seen that iSoftStone Information Technology (Group) currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 2 warning signs for iSoftStone Information Technology (Group) (1 can't be ignored!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.