Chengdu Information Technology of Chinese Academy of Sciences Co.,Ltd’s (SZSE:300678) 37% Share Price Surge Not Quite Adding Up

Chengdu Chinese Academy of Sciences Information Technology Co., Ltd. (SZSE: 300678) shares have had an impressive month, rising 37% after a period of instability previously. The increase last month was a significant increase of 141% compared to last year.

After the sharp price increase, you might think that Chinese Academy of Sciences Chengdu Information Technology Co., Ltd. is a stock worth avoiding, with its price-to-sales ratio (or “P/S”) of 19.2 times, considering that nearly half of China’s IT industry The company’s price-to-earnings ratio is below 3.6 times. However, there is a reason why the P/S is probably quite high, and further investigation is needed to determine if it is justified.

Check out our latest analysis for Chinese Academy of Sciences Chengdu Information Technology Co Ltd

What does the price-to-earnings ratio of Chinese Academy of Sciences Chengdu Information Technology Co., Ltd. mean to shareholders?

The revenue of Chengdu Information Technology Co., Ltd. of the Chinese Academy of Sciences grew steadily last year, which is a good result overall. Perhaps the market believes that recent revenue performance is enough to outperform the industry, pushing up the price-to-earnings ratio. You really hope so, otherwise you’ll be paying a high price for no reason.

While there are no analyst forecasts for CAS Chengdu Information Technology Co., Ltd., take a look at this free Data-rich visualizations that understand your company’s profitability, revenue, and cash flow.

What do revenue growth metrics tell us about high price-to-sales ratios?

To justify its price-to-earnings ratio, CAS Chengdu Information Technology Co., Ltd. needs to achieve outstanding growth that far outpaces the industry.

If we look back at last year’s revenue growth, the company’s revenue grew by 5.8%. The recent solid results mean total revenue has grown 17% over the past three years. So we can start by confirming that the company has actually done a good job growing revenue during that time.

Compared to an industry that’s expected to grow 41% over the next 12 months, the company’s momentum is weaker based on its recent mid-term annualized revenue results.

From this perspective, it’s shocking that CAS Chengdu Information Technology Co., Ltd. has a higher P/E ratio than most other companies. Clearly, many of the company’s investors are more optimistic than they have been lately and are unwilling to part with their shares at any price. If the P/E ratio falls to a level more in line with recent growth rates, existing shareholders will likely be disappointed in the future.

What does the price-to-earnings ratio of Chinese Academy of Sciences Chengdu Information Technology Co., Ltd. mean to investors?

CAS Chengdu Information Technology Co., Ltd.’s price-to-earnings ratio has grown well over the past month, thanks to a sharp increase in its share price. We believe that the role of the price-to-sales ratio is not primarily as a valuation tool, but as a measure of current investor sentiment and future expectations.

The fact that CAS Chengdu Information Technology Co., Ltd. currently trades on a high P/E ratio relative to the industry is odd, given that its growth over the last three years has been lower than broader industry forecasts. When we observe lower than industry revenue growth coupled with a higher P/E ratio, we assume there is significant risk of a share price decline, which will result in a lower P/E ratio. Unless conditions improve significantly over the recent medium term, it’s difficult to accept that these share prices are justified.

It is always necessary to consider the investment risks that are always present.we have determined 1 Warning Signs and Chinese Academy of Sciences Chengdu Information Technology Co., Ltd.and understanding should be part of your investing process.

What’s important Make sure you’re looking for a great company, not just the first idea you come across. So if growing profitability fits your idea of ​​a great company, take a look at this free A list of interesting companies with strong recent earnings growth (and low P/E ratios).

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This article from Simply Wall St is general in nature. We only use unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative information. Simply Wall St does not hold a position in any of the stocks mentioned.