Nanjing Sciyon Wisdom Technology Group Co., Ltd.'s (SZSE:002380) price-to-sales (or "P/S") ratio of 3.2x might make it look like a strong buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 6.7x and even P/S above 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Nanjing Sciyon Wisdom Technology Group Has Been Performing

Recent times have been advantageous for Nanjing Sciyon Wisdom Technology Group as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Any Revenue Growth Forecasted For Nanjing Sciyon Wisdom Technology Group?

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

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow revenue by 60% 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.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 50% over the next year. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Nanjing Sciyon Wisdom Technology Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Nanjing Sciyon Wisdom Technology Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Nanjing Sciyon Wisdom Technology Group with six simple checks will allow you to discover any risks that could be an issue.

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

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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.