China ITS (Holdings) Co., Ltd.'s (HKG:1900) Shares Bounce 52% But Its Business Still Trails The Industry

China ITS (Holdings) Co., Ltd. (HKG:1900) shares have continued their recent momentum with a 52% gain in the last month alone. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, China ITS (Holdings) may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the IT industry in Hong Kong have P/S ratios greater than 1.4x and even P/S higher than 4x 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 limited.

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View our latest analysis for China ITS (Holdings)

How China ITS (Holdings) Has Been Performing

As an illustration, revenue has deteriorated at China ITS (Holdings) over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on China ITS (Holdings) will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for China ITS (Holdings), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is China ITS (Holdings)'s Revenue Growth Trending?

In order to justify its P/S ratio, China ITS (Holdings) would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 9.2% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why China ITS (Holdings)'s P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On China ITS (Holdings)'s P/S

Despite China ITS (Holdings)'s share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, China ITS (Holdings) maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you settle on your opinion, we've discovered 4 warning signs for China ITS (Holdings) (1 is concerning!) that you should be aware of.

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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.