Gosuncn Technology Group Co., Ltd. (SZSE:300098) shares have had a really impressive month, gaining 57% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

Following the firm bounce in price, Gosuncn Technology Group may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5.2x, when you consider almost half of the companies in the Communications industry in China have P/S ratios under 4.2x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Gosuncn Technology Group's Recent Performance Look Like?

Gosuncn Technology Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Gosuncn Technology Group's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Gosuncn Technology Group'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 23%. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 24% as estimated by the two analysts watching the company. With the industry predicted to deliver 47% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Gosuncn Technology Group's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Gosuncn Technology Group's P/S Mean For Investors?

Gosuncn Technology Group's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Gosuncn Technology Group, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Gosuncn Technology Group you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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