Chengdu Qinchuan IoT Technology Co.Ltd. (SHSE:688528) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

Chengdu Qinchuan IoT Technology Co.Ltd. (SHSE:688528) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Chengdu Qinchuan IoT TechnologyLtd's price-to-sales (or "P/S") ratio of 3.6x right now seems quite "middle-of-the-road" compared to the Electronic industry in China, where the median P/S ratio is around 3.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Chengdu Qinchuan IoT TechnologyLtd

How Chengdu Qinchuan IoT TechnologyLtd Has Been Performing

The revenue growth achieved at Chengdu Qinchuan IoT TechnologyLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Chengdu Qinchuan IoT TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

Chengdu Qinchuan IoT TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. The solid recent performance means it was also able to grow revenue by 20% in total over the last three years. 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 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Chengdu Qinchuan IoT TechnologyLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Chengdu Qinchuan IoT TechnologyLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Chengdu Qinchuan IoT TechnologyLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you take the next step, you should know about the 2 warning signs for Chengdu Qinchuan IoT TechnologyLtd (1 is a bit concerning!) that we have uncovered.

If you're unsure about the strength of Chengdu Qinchuan IoT TechnologyLtd'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.