The Price Is Right For SDIC Intelligence Xiamen Information Co., Ltd. (SZSE:300188)

With a price-to-sales (or "P/S") ratio of 6x SDIC Intelligence Xiamen Information Co., Ltd. (SZSE:300188) may be sending bearish signals at the moment, given that almost half of all Electronic companies in China have P/S ratios under 4.4x 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.

View our latest analysis for SDIC Intelligence Xiamen Information

How SDIC Intelligence Xiamen Information Has Been Performing

With revenue growth that's inferior to most other companies of late, SDIC Intelligence Xiamen Information has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SDIC Intelligence Xiamen Information.

How Is SDIC Intelligence Xiamen Information's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as SDIC Intelligence Xiamen Information's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Still, lamentably revenue has fallen 16% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this information, we can see why SDIC Intelligence Xiamen Information is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

Our look into SDIC Intelligence Xiamen Information shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with SDIC Intelligence Xiamen Information.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.