Anhui Sinonet & Xinlong Science & Technology Co., Ltd. (SZSE:002298) Shares Fly 25% But Investors Aren't Buying For Growth

Anhui Sinonet & Xinlong Science & Technology Co., Ltd. (SZSE:002298) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 26% over that time.

Although its price has surged higher, Anhui Sinonet & Xinlong Science & Technology may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Electrical industry in China have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Anhui Sinonet & Xinlong Science & Technology

How Has Anhui Sinonet & Xinlong Science & Technology Performed Recently?

The revenue growth achieved at Anhui Sinonet & Xinlong Science & Technology over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Anhui Sinonet & Xinlong Science & Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Anhui Sinonet & Xinlong Science & Technology?

In order to justify its P/S ratio, Anhui Sinonet & Xinlong Science & 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 worthy increase of 15%. Still, lamentably revenue has fallen 28% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's an unpleasant look.

With this in mind, we understand why Anhui Sinonet & Xinlong Science & Technology's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Anhui Sinonet & Xinlong Science & Technology's P/S

Despite Anhui Sinonet & Xinlong Science & Technology's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Anhui Sinonet & Xinlong Science & Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Anhui Sinonet & Xinlong Science & Technology you should be aware of, and 1 of them can't be ignored.

If you're unsure about the strength of Anhui Sinonet & Xinlong Science & 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.