Qi An Xin Technology Group Inc. (SHSE:688561) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Even after such a large jump in price, Qi An Xin Technology Group's price-to-sales (or "P/S") ratio of 3.7x might still make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 5.2x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Qi An Xin Technology Group Has Been Performing

Recent revenue growth for Qi An Xin Technology Group 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. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Qi An Xin Technology Group'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.

If we review the last year of revenue growth, the company posted a worthy increase of 3.6%. This was backed up an excellent period prior to see revenue up by 55% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 27% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Qi An Xin Technology Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Qi An Xin Technology Group's P/S?

The latest share price surge wasn't enough to lift Qi An Xin Technology Group'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 we suspected, our examination of Qi An Xin Technology Group's analyst forecasts revealed that its inferior revenue outlook is contributing 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Qi An Xin Technology Group with six simple checks will allow you to discover any risks that could be an issue.

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.