Positive Sentiment Still Eludes Wuxi Boton Technology Co., Ltd. (SZSE:300031) Following 30% Share Price Slump

Wuxi Boton Technology Co., Ltd. (SZSE:300031) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 81% in the last year.

In spite of the heavy fall in price, Wuxi Boton Technology may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.1x, since almost half of all companies in the Entertainment industry in China have P/S ratios greater than 7.2x and even P/S higher than 13x 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.

Check out our latest analysis for Wuxi Boton Technology

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

Wuxi Boton Technology could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Wuxi Boton Technology?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Wuxi Boton Technology's to be considered reasonable.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 29% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

In light of this, it's peculiar that Wuxi Boton Technology's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Shares in Wuxi Boton Technology have plummeted and its P/S has followed suit. 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.

A look at Wuxi Boton Technology's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Wuxi Boton Technology is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.