RAISECOM TECHNOLOGY CO.,Ltd.'s (SHSE:603803) Revenues Are Not Doing Enough For Some Investors

With a price-to-sales (or "P/S") ratio of 1.7x RAISECOM TECHNOLOGY CO.,Ltd. (SHSE:603803) may be sending very bullish signals at the moment, given that almost half of all the Communications companies in China have P/S ratios greater than 4.3x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for RAISECOM TECHNOLOGYLtd

What Does RAISECOM TECHNOLOGYLtd's P/S Mean For Shareholders?

For example, consider that RAISECOM TECHNOLOGYLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as RAISECOM TECHNOLOGYLtd's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.5%. As a result, revenue from three years ago have also fallen 4.3% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 48% shows it's an unpleasant look.

With this information, we are not surprised that RAISECOM TECHNOLOGYLtd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does RAISECOM TECHNOLOGYLtd's P/S Mean For Investors?

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.

It's no surprise that RAISECOM TECHNOLOGYLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

There are also other vital risk factors to consider and we've discovered 3 warning signs for RAISECOM TECHNOLOGYLtd (2 are potentially serious!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on RAISECOM TECHNOLOGYLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.