There's No Escaping Integrated Electronic Systems Lab Co., Ltd.'s (SZSE:002339) Muted Revenues Despite A 29% Share Price Rise

Despite an already strong run, Integrated Electronic Systems Lab Co., Ltd. (SZSE:002339) shares have been powering on, with a gain of 29% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Even after such a large jump in price, Integrated Electronic Systems Lab may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.8x, since almost half of all companies in the Electrical industry in China have P/S ratios greater than 2.5x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

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?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Integrated Electronic Systems Lab's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.9% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Integrated Electronic Systems Lab's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite Integrated Electronic Systems Lab'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.

As we suspected, our examination of Integrated Electronic Systems Lab revealed its three-year revenue trends are contributing to its low P/S, given they look worse than 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.

Plus, you should also learn about this 1 warning sign we've spotted with Integrated Electronic Systems Lab.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.