Kingdee International Software Group Company Limited (HKG:268) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

Kingdee International Software Group Company Limited (HKG:268) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.

Even after such a large drop in price, when almost half of the companies in Hong Kong's Software industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider Kingdee International Software Group as a stock not worth researching with its 4.4x P/S ratio. 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 Kingdee International Software Group

How Has Kingdee International Software Group Performed Recently?

With revenue growth that's superior to most other companies of late, Kingdee International Software Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Kingdee International Software Group.

Is There Enough Revenue Growth Forecasted For Kingdee International Software Group?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Kingdee International Software Group's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. This was backed up an excellent period prior to see revenue up by 56% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader industry.

With this information, we find it interesting that Kingdee International Software Group is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

A significant share price dive has done very little to deflate Kingdee International Software Group's very lofty P/S. 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.

Given Kingdee International Software Group's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you take the next step, you should know about the 1 warning sign for Kingdee International Software Group that we have uncovered.

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.