Why We're Not Concerned About Xgimi Technology Co.,Ltd.'s (SHSE:688696) Share Price

With a median price-to-sales (or "P/S") ratio of close to 2.1x in the Consumer Durables industry in China, you could be forgiven for feeling indifferent about Xgimi Technology Co.,Ltd.'s (SHSE:688696) P/S ratio of 1.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Xgimi TechnologyLtd

How Has Xgimi TechnologyLtd Performed Recently?

While the industry has experienced revenue growth lately, Xgimi TechnologyLtd's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Xgimi TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Xgimi TechnologyLtd?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 16%. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 12% as estimated by the six analysts watching the company. That's shaping up to be similar to the 12% growth forecast for the broader industry.

With this information, we can see why Xgimi TechnologyLtd is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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.

We've seen that Xgimi TechnologyLtd maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Xgimi TechnologyLtd that you need to be mindful of.

If these risks are making you reconsider your opinion on Xgimi TechnologyLtd, 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.