Kingwisoft Technology Group Company Limited (HKG:8295) shares have continued their recent momentum with a 36% gain in the last month alone.    But the last month did very little to improve the 58% share price decline over the last year.  

Even after such a large jump in price, Kingwisoft Technology Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Capital Markets industry in Hong Kong have P/S ratios greater than 2.5x and even P/S higher than 10x are not unusual.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.  

SEHK:8295 Price to Sales Ratio vs Industry March 25th 2024

What Does Kingwisoft Technology Group's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Kingwisoft Technology Group has been doing very well.   It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio.  If you 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.    

Although there are no analyst estimates available for Kingwisoft Technology Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

Is There Any Revenue Growth Forecasted For Kingwisoft Technology Group?  

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Kingwisoft Technology Group's to be considered reasonable.  

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line.   This great performance means it was also able to deliver immense revenue growth over the last three years.  So we can start by confirming that the company has done a tremendous job of growing revenue over that time.  

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 32% shows it's noticeably more attractive.

In light of this, it's peculiar that Kingwisoft Technology Group's P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Bottom Line On Kingwisoft Technology Group's P/S

Shares in Kingwisoft Technology Group have risen appreciably however, its P/S is still subdued.      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.

We're very surprised to see Kingwisoft Technology Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.    

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Kingwisoft Technology Group (at least 1 which is potentially serious), and understanding them should be part of your investment process.  

If these risks are making you reconsider your opinion on Kingwisoft 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.