Why Investors Shouldn't Be Surprised By Funeng Oriental Equipment Technology Co., Ltd.'s (SZSE:300173) 33% Share Price Surge

Those holding Funeng Oriental Equipment Technology Co., Ltd. (SZSE:300173) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Funeng Oriental Equipment Technology's price-to-sales (or "P/S") ratio of 2.5x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 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.

View our latest analysis for Funeng Oriental Equipment Technology

What Does Funeng Oriental Equipment Technology's Recent Performance Look Like?

For instance, Funeng Oriental Equipment Technology's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

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

How Is Funeng Oriental Equipment Technology's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Funeng Oriental Equipment Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's top line. Even so, admirably revenue has lifted 93% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's understandable that Funeng Oriental Equipment Technology's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What Does Funeng Oriental Equipment Technology's P/S Mean For Investors?

Its shares have lifted substantially and now Funeng Oriental Equipment Technology's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we've seen, Funeng Oriental Equipment Technology's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Funeng Oriental Equipment Technology with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.