GuoChuang Software Co.,Ltd.'s (SZSE:300520) price-to-sales (or "P/S") ratio of 2x might make it look like a strong buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 5.6x and even P/S above 10x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for GuoChuang SoftwareLtd

What Does GuoChuang SoftwareLtd's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, GuoChuang SoftwareLtd has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For GuoChuang SoftwareLtd?

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

If we review the last year of revenue growth, the company posted a terrific increase of 41%. The latest three year period has also seen an excellent 86% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 37% over the next year. That's shaping up to be similar to the 36% growth forecast for the broader industry.

With this in consideration, we find it intriguing that GuoChuang SoftwareLtd's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On GuoChuang SoftwareLtd's P/S

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 GuoChuang SoftwareLtd's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

You should always think about risks. Case in point, we've spotted 1 warning sign for GuoChuang SoftwareLtd you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.