Shenzhen Kingdom Sci-Tech Co., Ltd (SHSE:600446) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

In spite of the firm bounce in price, Shenzhen Kingdom Sci-Tech's price-to-sales (or "P/S") ratio of 3x might still make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 7.2x and even P/S above 13x 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 so limited.

What Does Shenzhen Kingdom Sci-Tech's Recent Performance Look Like?

Shenzhen Kingdom Sci-Tech 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 Shenzhen Kingdom Sci-Tech?

Shenzhen Kingdom Sci-Tech's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a frustrating 8.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 9.4% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 18% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 32%, which is noticeably more attractive.

With this in consideration, its clear as to why Shenzhen Kingdom Sci-Tech's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shenzhen Kingdom Sci-Tech's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As expected, our analysis of Shenzhen Kingdom Sci-Tech'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Shenzhen Kingdom Sci-Tech with six simple checks.

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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