Investors Aren't Buying Truking Technology Limited's (SZSE:300358) Revenues

With a price-to-sales (or "P/S") ratio of 0.6x Truking Technology Limited (SZSE:300358) may be sending very bullish signals at the moment, given that almost half of all the Medical Equipment companies in China have P/S ratios greater than 5.4x and even P/S higher than 9x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Truking Technology

What Does Truking Technology's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Truking Technology's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Truking Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Truking Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 8.7% decrease to the company's top line. Still, the latest three year period has seen an excellent 38% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 21% over the next year. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

In light of this, it's understandable that Truking Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Truking Technology's P/S Mean For Investors?

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.

As expected, our analysis of Truking Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Truking Technology that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.