Kingsoft Cloud Holdings Limited's (NASDAQ:KC) price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the IT industry in the United States, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Kingsoft Cloud Holdings Performed Recently?

Kingsoft Cloud Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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 Kingsoft Cloud Holdings?

Kingsoft Cloud Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 9.9% each year as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is not materially different.

With this in consideration, we find it intriguing that Kingsoft Cloud Holdings' P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Kingsoft Cloud Holdings' P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Kingsoft Cloud Holdings 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. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Kingsoft Cloud Holdings, and understanding them should be part of your investment process.

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.