Ningbo Solartron Technology Co.,Ltd.'s (SHSE:688299) 25% Share Price Surge Not Quite Adding Up

Those holding Ningbo Solartron Technology Co.,Ltd. (SHSE:688299) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 71%.

Following the firm bounce in price, you could be forgiven for thinking Ningbo Solartron TechnologyLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.6x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Ningbo Solartron TechnologyLtd

How Has Ningbo Solartron TechnologyLtd Performed Recently?

Recent times have been advantageous for Ningbo Solartron TechnologyLtd as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Ningbo Solartron TechnologyLtd's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 7.8%. The solid recent performance means it was also able to grow revenue by 5.4% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the only analyst following the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Ningbo Solartron TechnologyLtd's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Ningbo Solartron TechnologyLtd's P/S Mean For Investors?

The large bounce in Ningbo Solartron TechnologyLtd's shares has lifted the company's P/S handsomely. 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.

It comes as a surprise to see Ningbo Solartron TechnologyLtd trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Ningbo Solartron TechnologyLtd that you need to take into consideration.

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.