Sanan Optoelectronics Co.,Ltd's (SHSE:600703) Share Price Boosted 34% But Its Business Prospects Need A Lift Too

Sanan Optoelectronics Co.,Ltd (SHSE:600703) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Although its price has surged higher, Sanan OptoelectronicsLtd's price-to-sales (or "P/S") ratio of 4x might still make it look like a buy right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios above 6.2x and even P/S above 12x 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 limited.

See our latest analysis for Sanan OptoelectronicsLtd

What Does Sanan OptoelectronicsLtd's Recent Performance Look Like?

Sanan OptoelectronicsLtd's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Sanan OptoelectronicsLtd will be hoping that this isn't the case.

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

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

Sanan OptoelectronicsLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 37%, which is noticeably more attractive.

With this information, we can see why Sanan OptoelectronicsLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Sanan OptoelectronicsLtd's P/S?

Sanan OptoelectronicsLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Sanan OptoelectronicsLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

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

If these risks are making you reconsider your opinion on Sanan OptoelectronicsLtd, 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.