Piesat Information Technology Co., Ltd. (SHSE:688066) shares have continued their recent momentum with a 27% gain in the last month alone. But the last month did very little to improve the 51% share price decline over the last year.

Although its price has surged higher, Piesat Information Technology may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.8x, since almost half of all companies in the Software industry in China have P/S ratios greater than 6.6x and even P/S higher than 12x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Piesat Information Technology Performed Recently?

Piesat Information Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Piesat Information Technology would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 41%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 26% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 78% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 33%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Piesat Information Technology's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite Piesat Information Technology's 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.

A look at Piesat Information Technology's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Piesat Information Technology that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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