Wuxi Boton Technology Co., Ltd.'s (SZSE:300031) Shares Leap 36% Yet They're Still Not Telling The Full Story

Wuxi Boton Technology Co., Ltd. (SZSE:300031) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 79%.

Even after such a large jump in price, Wuxi Boton Technology's price-to-sales (or "P/S") ratio of 2.7x might still make it look like a strong buy right now compared to the wider Entertainment industry in China, where around half of the companies have P/S ratios above 8.1x and even P/S above 17x 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.

View our latest analysis for Wuxi Boton Technology

How Wuxi Boton Technology Has Been Performing

With revenue growth that's inferior to most other companies of late, Wuxi Boton Technology has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 29% as estimated by the three analysts watching the company. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Wuxi Boton Technology's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Wuxi Boton Technology's P/S?

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

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. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Plus, you should also learn about this 1 warning sign we've spotted with Wuxi Boton Technology.

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.