Beijing Century Real Technology Co.,Ltd's (SZSE:300150) 43% Price Boost Is Out Of Tune With Revenues

Beijing Century Real Technology Co.,Ltd (SZSE:300150) shareholders would be excited to see that the share price has had a great month, posting a 43% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Beijing Century Real TechnologyLtd's P/S ratio of 2.6x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 3.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Beijing Century Real TechnologyLtd

How Beijing Century Real TechnologyLtd Has Been Performing

Beijing Century Real TechnologyLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic 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 Beijing Century Real TechnologyLtd will help you shine a light on its historical performance.

How Is Beijing Century Real TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Beijing Century Real TechnologyLtd would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.8%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 4.2% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Beijing Century Real TechnologyLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Beijing Century Real TechnologyLtd's P/S?

Its shares have lifted substantially and now Beijing Century Real TechnologyLtd's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We find it unexpected that Beijing Century Real TechnologyLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Beijing Century Real TechnologyLtd, and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.