Servyou Software Group Co., Ltd. (SHSE:603171) shares have continued their recent momentum with a 30% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 7.3% isn't as impressive.

Although its price has surged higher, it's still not a stretch to say that Servyou Software Group's price-to-sales (or "P/S") ratio of 7.5x right now seems quite "middle-of-the-road" compared to the Software industry in China, where the median P/S ratio is around 7.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Servyou Software Group's P/S Mean For Shareholders?

Recent times have been advantageous for Servyou Software Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Servyou Software Group's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 5.7%. The solid recent performance means it was also able to grow revenue by 23% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 24% as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 33% growth forecast for the broader industry.

With this in mind, we find it intriguing that Servyou Software Group's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Servyou Software Group's P/S

Servyou Software Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at the analysts forecasts of Servyou Software Group's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 1 warning sign for Servyou Software Group that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.