Beijing Fourth Paradigm Technology Co., Ltd. (HKG:6682) Looks Just Right With A 62% Price Jump

Beijing Fourth Paradigm Technology Co., Ltd. (HKG:6682) shareholders would be excited to see that the share price has had a great month, posting a 62% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, given around half the companies in Hong Kong's Software industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Beijing Fourth Paradigm Technology as a stock to avoid entirely with its 6.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Beijing Fourth Paradigm Technology

What Does Beijing Fourth Paradigm Technology's Recent Performance Look Like?

Recent times have been advantageous for Beijing Fourth Paradigm Technology as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Beijing Fourth Paradigm Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Beijing Fourth Paradigm Technology's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 36%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 20% per year over the next three years. With the industry only predicted to deliver 17% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Beijing Fourth Paradigm Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Beijing Fourth Paradigm Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Beijing Fourth Paradigm Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Beijing Fourth Paradigm Technology you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.