Asiainfo Security Technologies Co.,Ltd. (SHSE:688225) shares have continued their recent momentum with a 43% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

In spite of the firm bounce in price, Asiainfo Security TechnologiesLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.3x, considering almost half of all companies in the Software industry in China have P/S ratios greater than 7.3x and even P/S higher than 13x 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 reduced P/S.

How Has Asiainfo Security TechnologiesLtd Performed Recently?

Recent revenue growth for Asiainfo Security TechnologiesLtd has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Asiainfo Security TechnologiesLtd will be hoping that this isn't the case.

Do Revenue Forecasts Match The Low P/S Ratio?

Asiainfo Security TechnologiesLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 28% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 32%, which is noticeably more attractive.

With this in consideration, its clear as to why Asiainfo Security TechnologiesLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift Asiainfo Security TechnologiesLtd's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Asiainfo Security TechnologiesLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for Asiainfo Security TechnologiesLtd that we have uncovered.

If these risks are making you reconsider your opinion on Asiainfo Security TechnologiesLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.