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Changjietong Information Technology Co., Ltd. (HKG:1588) shareholders will be pleased to see the share price has had a stellar month, rising 29% and recovering from previous weakness. Not all shareholders will be happy, as the share price is still down 18% in the last 12 months, which is a huge disappointment.
Even though its price has risen significantly, you could be forgiven for being indifferent to the best-selling information technology’s price-to-earnings ratio of 1.5 times, because the median price-to-sales (or “P/S”) ratio of Hong Kong’s software industry is similar . However, if the price-to-sales ratio doesn’t have a sound basis, investors may overlook an obvious opportunity or potential setback.
Check out our latest analysis for Chanjet Information Technology
What does Chanjetong’s P/S mean to shareholders?
Chanjet Information Technology is likely to do better, as its recent revenue growth has been slower than most other companies. One possibility is that the price-to-sales ratio is modest, as investors believe this lackluster revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want a comprehensive look at what analysts are forecasting for the company?then our free Chanjet Information Technology Report will help you uncover what is coming.
What do revenue growth metrics tell us about P/S?
Chanjet Information Technology’s price-to-earnings ratio is typical for a company expected to achieve only modest growth, and importantly, its performance is in line with the industry.
Looking back, the company’s revenue numbers last year were nearly identical to the year before. Still, despite the short-term underperformance, overall revenue has grown 77% in the last three years. So shareholders will be happy, but there are also some questions to think about over the last 12 months.
Speaking of prospects, one analyst covering the company estimates growth of 11% per year over the next three years. Meanwhile, the rest of the industry is expected to grow at 18% annually, which is clearly more attractive.
Given this, it’s odd that Chanjet Information Technology’s P/S is in line with most other companies. It seems that most investors are ignoring the rather limited growth expectations and are willing to pay a price for the stock. Sustaining these prices will be difficult to achieve, as this level of revenue growth could ultimately depress the stock price.
What does Chanjetong’s P/S mean to investors?
Its stock price has risen sharply, and Chanjet’s price-to-earnings ratio is now back within the industry median range. Some argue that the price-to-sales ratio is a poor measure of value in some industries, but it can be a powerful indicator of business sentiment.
When you consider that Chanjet Information Technology’s revenue growth expectations are quite low compared to the broader industry, it’s easy to see why we think it’s trading at its current P/E ratio. When we look at companies with relatively weak revenue prospects compared to the industry, we suspect the share price is at risk of downside, resulting in a modest P/E decline. This puts shareholders’ investments at risk and puts potential investors in danger of paying an unnecessary premium.
A company’s balance sheet is another key area of risk analysis.You can assess many of the key risks with our free Conduct a balance sheet analysis of Chanjet Information Technology through six simple checks.
certainly, Profitable companies with a history of huge profitable growth are generally safer bets.So you might want to check this out free A collection of other companies with reasonable price-to-earnings ratios and strong earnings growth.
Valuation is complex, but we’re helping to make it simple.
Find out if Chanjet Information Technology is potentially overvalued or undervalued by checking out our comprehensive analysis, which includes Fair value estimates, risks and warnings, dividends, insider trading and financial health.
View free analysis
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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 has no position in any of the stocks mentioned.
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