Even With A 25% Surge, Cautious Investors Are Not Rewarding Beijing SOJO Electric Co., Ltd.'s (SZSE:300444) Performance Completely

Beijing SOJO Electric Co., Ltd. (SZSE:300444) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

In spite of the firm bounce in price, it's still not a stretch to say that Beijing SOJO Electric's price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Electrical industry in China, where the median P/S ratio is around 2.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Beijing SOJO Electric

How Beijing SOJO Electric Has Been Performing

With revenue growth that's exceedingly strong of late, Beijing SOJO Electric has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't 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 Beijing SOJO Electric will help you shine a light on its historical performance.

How Is Beijing SOJO Electric's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Beijing SOJO Electric's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. The strong recent performance means it was also able to grow revenue by 117% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 26%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Beijing SOJO Electric's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Beijing SOJO Electric appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, Beijing SOJO Electric revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 2 warning signs for Beijing SOJO Electric that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.