The Market Lifts Beijing SOJO Electric Co., Ltd. (SZSE:300444) Shares 48% But It Can Do More

Beijing SOJO Electric Co., Ltd. (SZSE:300444) shares have had a really impressive month, gaining 48% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.9% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Beijing SOJO Electric's P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Electrical industry in China is also close to 2.4x. 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.

See our latest analysis for Beijing SOJO Electric

How Has Beijing SOJO Electric Performed Recently?

Recent times have been advantageous for Beijing SOJO Electric as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing SOJO Electric.

Do Revenue Forecasts Match The P/S Ratio?

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.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The latest three year period has also seen an excellent 180% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 43% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 16% per annum, which is noticeably less attractive.

In light of this, it's curious that Beijing SOJO Electric's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Beijing SOJO Electric's P/S?

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 Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at Beijing SOJO Electric's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Beijing SOJO Electric you should know about.

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.