Beijing Tricolor Technology Co., Ltd's (SHSE:603516) P/S Is Still On The Mark Following 26% Share Price Bounce

Despite an already strong run, Beijing Tricolor Technology Co., Ltd (SHSE:603516) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 161% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Beijing Tricolor Technology's price-to-sales (or "P/S") ratio of 22.9x might make it look like a strong sell right now compared to other companies in the Electronic industry in China, where around half of the companies have P/S ratios below 4.2x and even P/S below 2x 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 lofty.

View our latest analysis for Beijing Tricolor Technology

How Beijing Tricolor Technology Has Been Performing

Beijing Tricolor Technology could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Beijing Tricolor Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Beijing Tricolor Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.1% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 1.7% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 57% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Beijing Tricolor Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Beijing Tricolor Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into Beijing Tricolor Technology shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Beijing Tricolor Technology that you should be aware of.

If you're unsure about the strength of Beijing Tricolor Technology'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.