Optimistic Investors Push Kaiyuan Education Technology Group Co., Ltd. (SZSE:300338) Shares Up 41% But Growth Is Lacking

Despite an already strong run, Kaiyuan Education Technology Group Co., Ltd. (SZSE:300338) shares have been powering on, with a gain of 41% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

Although its price has surged higher, there still wouldn't be many who think Kaiyuan Education Technology Group's price-to-sales (or "P/S") ratio of 3.8x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.2x. 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 Kaiyuan Education Technology Group

What Does Kaiyuan Education Technology Group's Recent Performance Look Like?

For example, consider that Kaiyuan Education Technology Group's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kaiyuan Education Technology Group will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Kaiyuan Education Technology Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 60% decrease to the company's top line. As a result, revenue from three years ago have also fallen 78% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

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.

With this information, we find it concerning that Kaiyuan Education Technology Group is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Kaiyuan Education Technology Group's P/S?

Kaiyuan Education Technology Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 look at Kaiyuan Education Technology Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Kaiyuan Education Technology Group that you should be aware of.

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.