Gosuncn Technology Group Co., Ltd.'s (SZSE:300098) 45% Price Boost Is Out Of Tune With Revenues

Gosuncn Technology Group Co., Ltd. (SZSE:300098) shares have continued their recent momentum with a 45% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, Gosuncn Technology Group may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 8.2x, since almost half of all companies in the Communications in China have P/S ratios under 5.6x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Gosuncn Technology Group

How Has Gosuncn Technology Group Performed Recently?

Gosuncn Technology Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Gosuncn Technology Group's to be considered reasonable.

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 17%. This means it has also seen a slide in revenue over the longer-term as revenue is down 36% 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 23% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 38% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Gosuncn Technology Group's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Gosuncn Technology Group's P/S

The large bounce in Gosuncn Technology Group's shares has lifted the company's P/S handsomely. 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 comes as a surprise to see Gosuncn Technology Group trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

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

If these risks are making you reconsider your opinion on Gosuncn Technology Group, 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.