The Smartgiant Technology Co., Ltd. (SHSE:688115) share price has done very well over the last month, posting an excellent gain of 31%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Since its price has surged higher, Smartgiant Technology may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 18.4x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4.6x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Smartgiant Technology

What Does Smartgiant Technology's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Smartgiant Technology over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Smartgiant Technology?

In order to justify its P/S ratio, Smartgiant Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 21% in aggregate. 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 63% shows it's an unpleasant look.

In light of this, it's alarming that Smartgiant Technology's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Smartgiant Technology's P/S

Shares in Smartgiant Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our examination of Smartgiant Technology revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You need to take note of risks, for example - Smartgiant Technology has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

If these risks are making you reconsider your opinion on Smartgiant Technology, 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.