Fujian Zitian Media Technology Co., Ltd.'s (SZSE:300280) Share Price Boosted 30% But Its Business Prospects Need A Lift Too

Those holding Fujian Zitian Media Technology Co., Ltd. (SZSE:300280) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 55% share price drop in the last twelve months.

Although its price has surged higher, it would still be understandable if you think Fujian Zitian Media Technology is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.4x, considering almost half the companies in China's Machinery industry have P/S ratios above 2.4x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Fujian Zitian Media Technology

What Does Fujian Zitian Media Technology's Recent Performance Look Like?

Fujian Zitian Media Technology has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Fujian Zitian Media Technology 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 Fujian Zitian Media Technology, 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 Fujian Zitian Media Technology?

Fujian Zitian Media Technology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 6.6% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 19% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Fujian Zitian Media Technology's P/S sits below the majority of other companies. 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.

What Does Fujian Zitian Media Technology's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Fujian Zitian Media Technology's P/S close to the industry median. 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.

Our examination of Fujian Zitian Media Technology confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Fujian Zitian Media Technology that you should be aware of.

If these risks are making you reconsider your opinion on Fujian Zitian Media 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.

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