With a price-to-sales (or "P/S") ratio of 4.5x Asiainfo Security Technologies Co.,Ltd. (SHSE:688225) may be sending bullish signals at the moment, given that almost half of all the Software companies in China have P/S ratios greater than 7x and even P/S higher than 12x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Asiainfo Security TechnologiesLtd

What Does Asiainfo Security TechnologiesLtd's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Asiainfo Security TechnologiesLtd's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is Asiainfo Security TechnologiesLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Asiainfo Security TechnologiesLtd's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. Even so, admirably revenue has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 33% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 37%, which is not materially different.

With this in consideration, we find it intriguing that Asiainfo Security TechnologiesLtd's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Asiainfo Security TechnologiesLtd's P/S

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.

It looks to us like the P/S figures for Asiainfo Security TechnologiesLtd remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Asiainfo Security TechnologiesLtd you should be aware of.

If you're unsure about the strength of Asiainfo Security TechnologiesLtd's 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.