The Market Lifts Guangdong Transtek Medical Electronics Co., Ltd (SZSE:300562) Shares 36% But It Can Do More

Those holding Guangdong Transtek Medical Electronics Co., Ltd (SZSE:300562) shares would be relieved that the share price has rebounded 36% 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 22% in the last twelve months.

Although its price has surged higher, Guangdong Transtek Medical Electronics may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Medical Equipment industry in China have P/S ratios greater than 5.6x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Guangdong Transtek Medical Electronics

What Does Guangdong Transtek Medical Electronics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Guangdong Transtek Medical Electronics' 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. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Guangdong Transtek Medical Electronics will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Guangdong Transtek Medical Electronics?

In order to justify its P/S ratio, Guangdong Transtek Medical Electronics would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 40%. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 33% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

With this information, we find it odd that Guangdong Transtek Medical Electronics is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Guangdong Transtek Medical Electronics' P/S Mean For Investors?

Shares in Guangdong Transtek Medical Electronics have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Guangdong Transtek Medical Electronics' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Guangdong Transtek Medical Electronics 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.