Baosheng Science and Technology Innovation Co.,Ltd. (SHSE:600973) shares have continued their recent momentum with a 28% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Even after such a large jump in price, Baosheng Science and Technology InnovationLtd's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a strong buy right now compared to the wider Electrical industry in China, where around half of the companies have P/S ratios above 2.5x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

What Does Baosheng Science and Technology InnovationLtd's Recent Performance Look Like?

Baosheng Science and Technology InnovationLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Baosheng Science and Technology InnovationLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Baosheng Science and Technology InnovationLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 3.8%. The solid recent performance means it was also able to grow revenue by 12% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 4.4% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

With this information, we can see why Baosheng Science and Technology InnovationLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Shares in Baosheng Science and Technology InnovationLtd have risen appreciably however, its P/S is still subdued. 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 Baosheng Science and Technology InnovationLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Baosheng Science and Technology InnovationLtd that we have uncovered.

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.

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