Those holding RAISECOM TECHNOLOGY CO.,Ltd. (SHSE:603803) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

Although its price has surged higher, RAISECOM TECHNOLOGYLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.6x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 4.3x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

How Has RAISECOM TECHNOLOGYLtd Performed Recently?

For instance, RAISECOM TECHNOLOGYLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on RAISECOM TECHNOLOGYLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For RAISECOM TECHNOLOGYLtd?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like RAISECOM TECHNOLOGYLtd's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.5%. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.3% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 52% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that RAISECOM TECHNOLOGYLtd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

RAISECOM TECHNOLOGYLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of RAISECOM TECHNOLOGYLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Having said that, be aware RAISECOM TECHNOLOGYLtd is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If you're unsure about the strength of RAISECOM TECHNOLOGYLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.