36Kr Holdings Inc. (NASDAQ:KRKR) Surges 66% Yet Its Low P/S Is No Reason For Excitement

36Kr Holdings Inc. (NASDAQ:KRKR) shares have had a really impressive month, gaining 66% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 78% in the last year.

Even after such a large jump in price, 36Kr Holdings' price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Interactive Media and Services industry in the United States, where around half of the companies have P/S ratios above 1.4x and even P/S above 4x are quite common. 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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Check out our latest analysis for 36Kr Holdings

What Does 36Kr Holdings' P/S Mean For Shareholders?

For example, consider that 36Kr Holdings' financial performance has been poor lately as its revenue has been in decline. 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 36Kr Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 36Kr Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For 36Kr Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like 36Kr Holdings' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. As a result, revenue from three years ago have also fallen 27% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 15% shows it's an unpleasant look.

In light of this, it's understandable that 36Kr Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Despite 36Kr Holdings' 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.

It's no surprise that 36Kr Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for 36Kr Holdings (1 is significant!) that we have uncovered.

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.