Suzhou Harmontronics Automation Technology Co., Ltd's (SHSE:688022) Shares Leap 50% Yet They're Still Not Telling The Full Story

Suzhou Harmontronics Automation Technology Co., Ltd (SHSE:688022) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. But the last month did very little to improve the 50% share price decline over the last year.

Even after such a large jump in price, Suzhou Harmontronics Automation Technology may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Suzhou Harmontronics Automation Technology

What Does Suzhou Harmontronics Automation Technology's P/S Mean For Shareholders?

Suzhou Harmontronics Automation Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzhou Harmontronics Automation Technology.

Is There Any Revenue Growth Forecasted For Suzhou Harmontronics Automation Technology?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Suzhou Harmontronics Automation Technology's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 52% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 135% over the next year. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Suzhou Harmontronics Automation Technology's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite Suzhou Harmontronics Automation Technology's share price climbing recently, its P/S still lags most other companies. 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.

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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Suzhou Harmontronics Automation Technology.

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.