KSEC Intelligent Technology Co., Ltd.'s (SZSE:301311) price-to-sales (or "P/S") ratio of 2.6x might make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 3.2x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How KSEC Intelligent Technology Has Been Performing

As an illustration, revenue has deteriorated at KSEC Intelligent Technology over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on KSEC Intelligent Technology 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 KSEC Intelligent Technology?

In order to justify its P/S ratio, KSEC Intelligent Technology would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.2% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why KSEC Intelligent Technology's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does KSEC Intelligent Technology's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of KSEC Intelligent Technology confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware KSEC Intelligent Technology is showing 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

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.