Market Still Lacking Some Conviction On Suzhou Harmontronics Automation Technology Co., Ltd (SHSE:688022)

Suzhou Harmontronics Automation Technology Co., Ltd's (SHSE:688022) price-to-sales (or "P/S") ratio of 1.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Machinery industry in China have P/S ratios greater than 2.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Suzhou Harmontronics Automation Technology

What Does Suzhou Harmontronics Automation Technology's Recent Performance Look Like?

Suzhou Harmontronics Automation Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.

Keen to find out how analysts think Suzhou Harmontronics Automation Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Suzhou Harmontronics Automation Technology would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 110% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 61% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 21%, which is noticeably less attractive.

In light of this, it's peculiar that Suzhou Harmontronics Automation Technology's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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.

To us, it seems Suzhou Harmontronics Automation Technology currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Suzhou Harmontronics Automation Technology that you need to be mindful of.

If you're unsure about the strength of Suzhou Harmontronics Automation Technology'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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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.