Jilin University Zhengyuan Information Technologies Co., Ltd.'s (SZSE:003029) price-to-sales (or "P/S") ratio of 9.9x might make it look like a strong sell right now compared to the Software industry in China, where around half of the companies have P/S ratios below 6.1x and even P/S below 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Jilin University Zhengyuan Information Technologies

How Jilin University Zhengyuan Information Technologies Has Been Performing

While the industry has experienced revenue growth lately, Jilin University Zhengyuan Information Technologies' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Jilin University Zhengyuan Information Technologies?

In order to justify its P/S ratio, Jilin University Zhengyuan Information Technologies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 68% decrease to the company's top line. As a result, revenue from three years ago have also fallen 32% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 190% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 36%, the company is positioned for a stronger revenue result.

With this information, we can see why Jilin University Zhengyuan Information Technologies is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Jilin University Zhengyuan Information Technologies' P/S?

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.

We've established that Jilin University Zhengyuan Information Technologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Jilin University Zhengyuan Information Technologies that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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