Sunwave Communications Co.Ltd (SZSE:002115) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Sunwave Communications Co.Ltd (SZSE:002115) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

In spite of the firm bounce in price, Sunwave CommunicationsLtd's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Media industry in China, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Sunwave CommunicationsLtd

How Has Sunwave CommunicationsLtd Performed Recently?

For instance, Sunwave CommunicationsLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you 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 earnings, revenue and cash flow for the company? Then our free report on Sunwave CommunicationsLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Sunwave CommunicationsLtd?

In order to justify its P/S ratio, Sunwave CommunicationsLtd would need to produce anemic growth that's substantially trailing 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 14%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 7.7% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Sunwave CommunicationsLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Even after such a strong price move, Sunwave CommunicationsLtd's P/S still trails the rest of the industry. 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.

Our examination of Sunwave CommunicationsLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Sunwave CommunicationsLtd you should be aware of.

If these risks are making you reconsider your opinion on Sunwave CommunicationsLtd, 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.