Subdued Growth No Barrier To Shenzhen Center Power Tech. Co., Ltd (SZSE:002733) With Shares Advancing 29%

Despite an already strong run, Shenzhen Center Power Tech. Co., Ltd (SZSE:002733) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

Although its price has surged higher, there still wouldn't be many who think Shenzhen Center Power Tech's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in China's Electrical industry is similar at about 2.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Shenzhen Center Power Tech

What Does Shenzhen Center Power Tech's Recent Performance Look Like?

For instance, Shenzhen Center Power Tech's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Center Power Tech will help you shine a light on its historical performance.

How Is Shenzhen Center Power Tech's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 6.1% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 27% 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 curious that Shenzhen Center Power Tech's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Shenzhen Center Power Tech's P/S Mean For Investors?

Shenzhen Center Power Tech appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Shenzhen Center Power Tech's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Shenzhen Center Power Tech (of which 2 are a bit unpleasant!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.