Wanma Technology Co., Ltd.'s (SZSE:300698) 26% Jump Shows Its Popularity With Investors

Those holding Wanma Technology Co., Ltd. (SZSE:300698) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

After such a large jump in price, you could be forgiven for thinking Wanma Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.6x, considering almost half the companies in China's Communications industry have P/S ratios below 5.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Wanma Technology

How Wanma Technology Has Been Performing

Wanma Technology could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wanma Technology.

How Is Wanma Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Wanma Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 6.1% gain to the company's revenues. The latest three year period has also seen a 7.0% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 50% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 34%, which is noticeably less attractive.

In light of this, it's understandable that Wanma Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Wanma Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Wanma Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Wanma Technology is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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.