Despite an already strong run, Nanjing Sciyon Wisdom Technology Group Co., Ltd. (SZSE:002380) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Nanjing Sciyon Wisdom Technology Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.1x, since almost half of all companies in the Software industry in China have P/S ratios greater than 5.1x and even P/S higher than 9x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Nanjing Sciyon Wisdom Technology Group Performed Recently?

With revenue growth that's superior to most other companies of late, Nanjing Sciyon Wisdom Technology Group 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 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Nanjing Sciyon Wisdom Technology Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The latest three year period has also seen an excellent 64% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 60% over the next year. With the industry only predicted to deliver 35%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Nanjing Sciyon Wisdom Technology Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Nanjing Sciyon Wisdom Technology Group's share price climbing recently, its P/S still lags most other companies. 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.

To us, it seems Nanjing Sciyon Wisdom Technology Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Nanjing Sciyon Wisdom Technology Group, and understanding should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.