GoodWe Technologies Co., Ltd.'s (SHSE:688390) Shares Leap 27% Yet They're Still Not Telling The Full Story

GoodWe Technologies Co., Ltd. (SHSE:688390) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think GoodWe Technologies' price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S in China's Electrical industry is similar at about 2.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for GoodWe Technologies

How Has GoodWe Technologies Performed Recently?

GoodWe Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is GoodWe Technologies' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like GoodWe Technologies' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 5.5% decrease to the company's top line. Still, the latest three year period has seen an excellent 220% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 29% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 16% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that GoodWe Technologies' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now GoodWe Technologies' P/S is back within range of the industry median. 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.

Looking at GoodWe Technologies' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for GoodWe Technologies you should be aware of, and 3 of them make us uncomfortable.

If you're unsure about the strength of GoodWe Technologies' 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.