Optimistic Investors Push Cosonic Intelligent Technologies Co., Ltd. (SZSE:300793) Shares Up 26% But Growth Is Lacking

Cosonic Intelligent Technologies Co., Ltd. (SZSE:300793) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

After such a large jump in price, you could be forgiven for thinking Cosonic Intelligent Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in China's Consumer Durables industry have P/S ratios below 2.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Cosonic Intelligent Technologies

How Cosonic Intelligent Technologies Has Been Performing

The revenue growth achieved at Cosonic Intelligent Technologies over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cosonic Intelligent Technologies will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Cosonic Intelligent Technologies' to be considered reasonable.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Still, lamentably revenue has fallen 19% in aggregate from three years ago, which is disappointing. 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.

In light of this, it's alarming that Cosonic Intelligent Technologies' P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Cosonic Intelligent Technologies' P/S?

Cosonic Intelligent Technologies' P/S is on the rise since its shares have risen strongly. 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 established that Cosonic Intelligent Technologies currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 4 warning signs for Cosonic Intelligent Technologies that you need to take into consideration.

If these risks are making you reconsider your opinion on Cosonic Intelligent Technologies, 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.