Jiangsu NandaSoft Technology Company Limited (HKG:8045) Looks Inexpensive But Perhaps Not Attractive Enough

When you see that almost half of the companies in the IT industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.2x, Jiangsu NandaSoft Technology Company Limited (HKG:8045) looks to be giving off some buy signals with its 0.2x 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 limited.

Check out our latest analysis for Jiangsu NandaSoft Technology

How Jiangsu NandaSoft Technology Has Been Performing

For instance, Jiangsu NandaSoft Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangsu NandaSoft Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Jiangsu NandaSoft Technology?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu NandaSoft Technology's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 51%. The last three years don't look nice either as the company has shrunk revenue by 67% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Jiangsu NandaSoft Technology is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

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.

As we suspected, our examination of Jiangsu NandaSoft Technology revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Jiangsu NandaSoft Technology (1 is a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Jiangsu NandaSoft Technology, 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.