Not Many Are Piling Into Kingsoft Cloud Holdings Limited (NASDAQ:KC) Just Yet

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Kingsoft Cloud Holdings Limited (NASDAQ:KC) is a stock worth checking out, seeing as almost half of all the IT companies in the United States have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Kingsoft Cloud Holdings

How Has Kingsoft Cloud Holdings Performed Recently?

While the industry has experienced revenue growth lately, Kingsoft Cloud Holdings' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Kingsoft Cloud Holdings will help you uncover what's on the horizon.

How Is Kingsoft Cloud Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Kingsoft Cloud Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 10% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 11% per year, which is not materially different.

With this information, we find it odd that Kingsoft Cloud Holdings is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Kingsoft Cloud Holdings' P/S

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.

We've seen that Kingsoft Cloud Holdings currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Kingsoft Cloud Holdings that you should be aware of.

If you're unsure about the strength of Kingsoft Cloud Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com