Wuxi Boton Technology Co., Ltd. (SZSE:300031) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 6.2% isn't as attractive.

Although its price has surged higher, Wuxi Boton Technology may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Entertainment industry in China have P/S ratios greater than 5.6x and even P/S higher than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Has Wuxi Boton Technology Performed Recently?

Wuxi Boton Technology's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 44% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the three analysts following the company. With the industry predicted to deliver 28% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Wuxi Boton Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Wuxi Boton Technology's P/S

Wuxi Boton Technology'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.

As expected, our analysis of Wuxi Boton Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Wuxi Boton Technology that you should be aware of.

If these risks are making you reconsider your opinion on Wuxi Boton Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.