Subdued Growth No Barrier To Shenzhen Sosen Electronics Co.,Ltd. (SZSE:301002) With Shares Advancing 33%

Those holding Shenzhen Sosen Electronics Co.,Ltd. (SZSE:301002) 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 38% over that time.

Although its price has surged higher, there still wouldn't be many who think Shenzhen Sosen ElectronicsLtd's price-to-sales (or "P/S") ratio of 2.3x is worth a mention when the median P/S in China's Electrical industry is similar at about 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 Shenzhen Sosen ElectronicsLtd

How Shenzhen Sosen ElectronicsLtd Has Been Performing

For example, consider that Shenzhen Sosen ElectronicsLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Sosen ElectronicsLtd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Shenzhen Sosen ElectronicsLtd?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Shenzhen Sosen ElectronicsLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Shenzhen Sosen ElectronicsLtd's P/S

Its shares have lifted substantially and now Shenzhen Sosen ElectronicsLtd's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Shenzhen Sosen ElectronicsLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Shenzhen Sosen ElectronicsLtd (1 is potentially serious!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Shenzhen Sosen ElectronicsLtd, 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.