Guangzhou Echom Sci.&Tech.Co.,Ltd (SZSE:002420) Stock Catapults 26% Though Its Price And Business Still Lag The Industry

Those holding Guangzhou Echom Sci.&Tech.Co.,Ltd (SZSE:002420) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Although its price has surged higher, given about half the companies operating in China's Consumer Durables industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider Guangzhou Echom Sci.&Tech.Co.Ltd as an attractive investment with its 1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Guangzhou Echom Sci.&Tech.Co.Ltd

How Guangzhou Echom Sci.&Tech.Co.Ltd Has Been Performing

As an illustration, revenue has deteriorated at Guangzhou Echom Sci.&Tech.Co.Ltd over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Guangzhou Echom Sci.&Tech.Co.Ltd 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 Guangzhou Echom Sci.&Tech.Co.Ltd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Guangzhou Echom Sci.&Tech.Co.Ltd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Guangzhou Echom Sci.&Tech.Co.Ltd's is when the company's growth is on track to lag the industry.

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 9.8%. The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Guangzhou Echom Sci.&Tech.Co.Ltd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Guangzhou Echom Sci.&Tech.Co.Ltd's P/S Mean For Investors?

Despite Guangzhou Echom Sci.&Tech.Co.Ltd's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Guangzhou Echom Sci.&Tech.Co.Ltd maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Guangzhou Echom Sci.&Tech.Co.Ltd that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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