Super Telecom Co.,Ltd (SHSE:603322) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last month tops off a massive increase of 117% in the last year.

In spite of the firm bounce in price, Super TelecomLtd's price-to-sales (or "P/S") ratio of 2.8x might still make it look like a buy right now compared to the Telecom industry in China, where around half of the companies have P/S ratios above 3.7x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Super TelecomLtd Performed Recently?

With revenue growth that's superior to most other companies of late, Super TelecomLtd has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

Super TelecomLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 72% 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 one analyst covering the company suggest revenue should grow by 27% over the next year. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Super TelecomLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Super TelecomLtd's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A look at Super TelecomLtd'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. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Super TelecomLtd with six simple checks.

If you're unsure about the strength of Super TelecomLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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