You may think that with a price-to-sales (or "P/S") ratio of 4.1x Qi An Xin Technology Group Inc. (SHSE:688561) is a stock worth checking out, seeing as almost half of all the Software companies in China have P/S ratios greater than 6.2x and even P/S higher than 11x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Qi An Xin Technology Group

What Does Qi An Xin Technology Group's Recent Performance Look Like?

Qi An Xin Technology Group's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Qi An Xin Technology Group will be hoping that this isn't the case.

How Is Qi An Xin Technology Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Qi An Xin Technology Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. This was backed up an excellent period prior to see revenue up by 87% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the eleven analysts watching the company. That's shaping up to be similar to the 29% each year growth forecast for the broader industry.

With this information, we find it odd that Qi An Xin Technology Group is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that Qi An Xin Technology Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Qi An Xin Technology Group, and understanding should be part of your investment process.

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.