Shenzhen Kaizhong Precision Technology Co., Ltd. (SZSE:002823) Stock Catapults 27% Though Its Price And Business Still Lag The Industry

Shenzhen Kaizhong Precision Technology Co., Ltd. (SZSE:002823) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Even after such a large jump in price, given about half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") above 2.3x, you may still consider Shenzhen Kaizhong Precision Technology as an attractive investment with its 1.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Shenzhen Kaizhong Precision Technology

What Does Shenzhen Kaizhong Precision Technology's Recent Performance Look Like?

Shenzhen Kaizhong Precision Technology has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Shenzhen Kaizhong Precision Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Shenzhen Kaizhong Precision Technology's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shenzhen Kaizhong Precision Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 24% shows it's noticeably less attractive.

With this information, we can see why Shenzhen Kaizhong Precision Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite Shenzhen Kaizhong Precision 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.

As we suspected, our examination of Shenzhen Kaizhong Precision Technology revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shenzhen Kaizhong Precision Technology (2 can't be ignored) you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Kaizhong Precision Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.