Investors Aren't Buying Hangzhou Anysoft Information Technology Co., Ltd.'s (SZSE:300571) Revenues

Hangzhou Anysoft Information Technology Co., Ltd.'s (SZSE:300571) price-to-sales (or "P/S") ratio of 2x might make it look like a strong buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 4.2x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Hangzhou Anysoft Information Technology

What Does Hangzhou Anysoft Information Technology's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Hangzhou Anysoft Information Technology over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic 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 Hangzhou Anysoft Information Technology will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Hangzhou Anysoft Information Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 58% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.4% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 51% 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 are not surprised that Hangzhou Anysoft Information Technology is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Hangzhou Anysoft Information Technology maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Hangzhou Anysoft Information Technology (1 is a bit concerning!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.