Further Upside For Nexwise Intelligence China Limited (SZSE:301248) Shares Could Introduce Price Risks After 36% Bounce

Nexwise Intelligence China Limited (SZSE:301248) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last month tops off a massive increase of 121% in the last year.

In spite of the firm bounce in price, Nexwise Intelligence China may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.1x, since almost half of all companies in the Software industry in China have P/S ratios greater than 6.5x and even P/S higher than 11x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Nexwise Intelligence China

What Does Nexwise Intelligence China's Recent Performance Look Like?

Nexwise Intelligence China could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Nexwise Intelligence China'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?

The only time you'd be truly comfortable seeing a P/S as low as Nexwise Intelligence China's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 25% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 36% as estimated by the one analyst watching the company. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Nexwise Intelligence China is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Nexwise Intelligence China's P/S

The latest share price surge wasn't enough to lift Nexwise Intelligence China's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Nexwise Intelligence China's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Nexwise Intelligence China you should know about.

If you're unsure about the strength of Nexwise Intelligence China's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.