The Market Doesn't Like What It Sees From Sanan Optoelectronics Co.,Ltd's (SHSE:600703) Revenues Yet

With a price-to-sales (or "P/S") ratio of 3.5x Sanan Optoelectronics Co.,Ltd (SHSE:600703) may be sending bullish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios greater than 7x and even P/S higher than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Sanan OptoelectronicsLtd

What Does Sanan OptoelectronicsLtd's P/S Mean For Shareholders?

There hasn't been much to differentiate Sanan OptoelectronicsLtd's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic 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 Sanan OptoelectronicsLtd.

How Is Sanan OptoelectronicsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Sanan OptoelectronicsLtd's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. The strong recent performance means it was also able to grow revenue by 30% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the six analysts following the company. With the industry predicted to deliver 50% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Sanan OptoelectronicsLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Sanan OptoelectronicsLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Sanan OptoelectronicsLtd that 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.