Zhangjiagang Furui Special Equipment Co., Ltd.'s (SZSE:300228) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Zhangjiagang Furui Special Equipment Co., Ltd. (SZSE:300228) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.

Even after such a large jump in price, Zhangjiagang Furui Special Equipment's price-to-sales (or "P/S") ratio of 1.7x might still make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 2.7x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Zhangjiagang Furui Special Equipment

What Does Zhangjiagang Furui Special Equipment's P/S Mean For Shareholders?

Zhangjiagang Furui Special Equipment certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Zhangjiagang Furui Special Equipment will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Is There Any Revenue Growth Forecasted For Zhangjiagang Furui Special Equipment?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Zhangjiagang Furui Special Equipment's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 78%. Pleasingly, revenue has also lifted 57% in aggregate from three years ago, thanks to the last 12 months of growth. 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 28% shows it's noticeably less attractive.

With this information, we can see why Zhangjiagang Furui Special Equipment is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Zhangjiagang Furui Special Equipment's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

In line with expectations, Zhangjiagang Furui Special Equipment maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. 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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Zhangjiagang Furui Special Equipment (1 is significant!) that you should be aware of before investing here.

If you're unsure about the strength of Zhangjiagang Furui Special Equipment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.