Beijing Join-Cheer Software Co., Ltd. (SZSE:002279) Held Back By Insufficient Growth Even After Shares Climb 27%

Simply Wall St · 09/27 22:05

The Beijing Join-Cheer Software Co., Ltd. (SZSE:002279) share price has done very well over the last month, posting an excellent gain of 27%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

Although its price has surged higher, Beijing Join-Cheer Software's price-to-sales (or "P/S") ratio of 1.2x 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 4.9x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing Join-Cheer Software

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SZSE:002279 Price to Sales Ratio vs Industry September 27th 2024

How Beijing Join-Cheer Software Has Been Performing

Beijing Join-Cheer Software certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Beijing Join-Cheer Software will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Join-Cheer Software will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

Beijing Join-Cheer Software'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.

Taking a look back first, we see that the company grew revenue by an impressive 46% last year. The strong recent performance means it was also able to grow revenue by 67% 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.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Beijing Join-Cheer Software's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Even after such a strong price move, Beijing Join-Cheer Software's P/S still trails the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Beijing Join-Cheer Software revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 1 warning sign for Beijing Join-Cheer Software that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.