NET263 Ltd. (SZSE:002467) Stocks Shoot Up 84% But Its P/S Still Looks Reasonable

NET263 Ltd. (SZSE:002467) shares have continued their recent momentum with a 84% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 51%.

Following the firm bounce in price, NET263 may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.3x, since almost half of all companies in the Telecom industry in China have P/S ratios under 4.2x and even P/S lower than 2x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for NET263

How NET263 Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, NET263 has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NET263.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as NET263's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Turning to the outlook, the next year should generate growth of 7.7% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 4.9%, the company is positioned for a stronger revenue result.

With this information, we can see why NET263 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.

What Does NET263's P/S Mean For Investors?

Shares in NET263 have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that NET263 maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Telecom industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with NET263.

If these risks are making you reconsider your opinion on NET263, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.