Gosuncn Technology Group Co., Ltd. (SZSE:300098) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

After such a large jump in price, Gosuncn Technology Group's price-to-sales (or "P/S") ratio of 5.3x might make it look like a sell right now compared to the wider Communications industry in China, where around half of the companies have P/S ratios below 4.2x and even P/S below 2x 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 as high as it is.

How Gosuncn Technology Group Has Been Performing

Gosuncn Technology Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Gosuncn Technology Group?

Gosuncn Technology Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the two analysts following the company. With the industry predicted to deliver 42% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Gosuncn Technology Group is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Gosuncn Technology Group's P/S

Gosuncn Technology Group shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

It comes as a surprise to see Gosuncn Technology Group trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Gosuncn Technology Group that you need to take into consideration.

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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