Wolong Electric Group Co.,Ltd. (SHSE:600580) Stock Catapults 29% Though Its Price And Business Still Lag The Industry

Wolong Electric Group Co.,Ltd. (SHSE:600580) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 53% in the last year.

In spite of the firm bounce in price, Wolong Electric GroupLtd's price-to-sales (or "P/S") ratio of 1.5x might still make it look like a buy right now compared to the Electrical industry in China, where around half of the companies have P/S ratios above 2.4x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Wolong Electric GroupLtd

What Does Wolong Electric GroupLtd's Recent Performance Look Like?

Wolong Electric GroupLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

Want the full picture on analyst estimates for the company? Then our free report on Wolong Electric GroupLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Wolong Electric GroupLtd?

In order to justify its P/S ratio, Wolong Electric GroupLtd would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the three analysts following the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Wolong Electric GroupLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Wolong Electric GroupLtd's P/S

Despite Wolong Electric GroupLtd's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Wolong Electric GroupLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Wolong Electric GroupLtd is showing 3 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.