Chengdu CORPRO Technology Co.,Ltd.'s (SZSE:300101) Shares Climb 26% But Its Business Is Yet to Catch Up

Chengdu CORPRO Technology Co.,Ltd. (SZSE:300101) shares have continued their recent momentum with a 26% gain in the last month alone. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.5% over the last year.

After such a large jump in price, you could be forgiven for thinking Chengdu CORPRO TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 15.4x, considering almost half the companies in China's Communications industry have P/S ratios below 5.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Chengdu CORPRO TechnologyLtd

What Does Chengdu CORPRO TechnologyLtd's P/S Mean For Shareholders?

For example, consider that Chengdu CORPRO TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Chengdu CORPRO TechnologyLtd's earnings, revenue and cash flow.

How Is Chengdu CORPRO TechnologyLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Chengdu CORPRO TechnologyLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 5.8% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that Chengdu CORPRO TechnologyLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Chengdu CORPRO TechnologyLtd's P/S

The strong share price surge has lead to Chengdu CORPRO TechnologyLtd's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Chengdu CORPRO TechnologyLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

You always need to take note of risks, for example - Chengdu CORPRO TechnologyLtd has 3 warning signs we think you should be aware of.

If you're unsure about the strength of Chengdu CORPRO 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.