Revenues Not Telling The Story For Chengdu Qinchuan IoT Technology Co.Ltd. (SHSE:688528) After Shares Rise 28%

Chengdu Qinchuan IoT Technology Co.Ltd. (SHSE:688528) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Chengdu Qinchuan IoT TechnologyLtd's price-to-sales (or "P/S") ratio of 3.9x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Chengdu Qinchuan IoT TechnologyLtd

How Chengdu Qinchuan IoT TechnologyLtd Has Been Performing

For instance, Chengdu Qinchuan IoT TechnologyLtd's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Chengdu Qinchuan IoT TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Chengdu Qinchuan IoT TechnologyLtd?

The only time you'd be comfortable seeing a P/S like Chengdu Qinchuan IoT TechnologyLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 8.3% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Chengdu Qinchuan IoT TechnologyLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Chengdu Qinchuan IoT TechnologyLtd's P/S

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. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Chengdu Qinchuan IoT TechnologyLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Chengdu Qinchuan IoT TechnologyLtd that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.