Despite an already strong run, Hylink Digital Solutions Co.,Ltd (SHSE:603825) shares have been powering on, with a gain of 30% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

Even after such a large jump in price, Hylink Digital SolutionsLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Media industry in China have P/S ratios greater than 3.2x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Hylink Digital SolutionsLtd

What Does Hylink Digital SolutionsLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Hylink Digital SolutionsLtd over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Hylink Digital SolutionsLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Hylink Digital SolutionsLtd's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. As a result, revenue from three years ago have also fallen 29% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 21% shows it's an unpleasant look.

With this in mind, we understand why Hylink Digital SolutionsLtd's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Hylink Digital SolutionsLtd's P/S?

Even after such a strong price move, Hylink Digital SolutionsLtd's P/S still trails the rest of the industry. 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.

It's no surprise that Hylink Digital SolutionsLtd maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Hylink Digital SolutionsLtd (1 shouldn't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.