Take Care Before Jumping Onto Kingsoft Cloud Holdings Limited (NASDAQ:KC) Even Though It's 28% Cheaper

The Kingsoft Cloud Holdings Limited (NASDAQ:KC) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 323%.

In spite of the heavy fall in price, it's still not a stretch to say that Kingsoft Cloud Holdings' price-to-sales (or "P/S") ratio of 2.7x right now seems quite "middle-of-the-road" compared to the IT industry in the United States, where the median P/S ratio is around 2.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Kingsoft Cloud Holdings

How Kingsoft Cloud Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, Kingsoft Cloud Holdings has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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How Is Kingsoft Cloud Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Kingsoft Cloud Holdings would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 14% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 19% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader industry.

In light of this, it's curious that Kingsoft Cloud Holdings' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Kingsoft Cloud Holdings' P/S Mean For Investors?

Kingsoft Cloud Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 established that Kingsoft Cloud Holdings currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Kingsoft Cloud Holdings you should know about.

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.