Investors Aren't Buying Integrated Electronic Systems Lab Co., Ltd.'s (SZSE:002339) Revenues

With a price-to-sales (or "P/S") ratio of 1.2x Integrated Electronic Systems Lab Co., Ltd. (SZSE:002339) may be sending bullish signals at the moment, given that almost half of all the Electrical companies in China have P/S ratios greater than 2x and even P/S higher than 4x 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.

Check out our latest analysis for Integrated Electronic Systems Lab

How Integrated Electronic Systems Lab Has Been Performing

Integrated Electronic Systems Lab has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Integrated Electronic Systems Lab, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Integrated Electronic Systems Lab's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Integrated Electronic Systems Lab's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen a 13% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Integrated Electronic Systems Lab's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Integrated Electronic Systems Lab's P/S Mean For Investors?

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 Integrated Electronic Systems Lab confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Integrated Electronic Systems Lab, and understanding should be part of your investment process.

If you're unsure about the strength of Integrated Electronic Systems Lab'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.