Further Upside For Shanghai Aiko Solar Energy Co.,Ltd. (SHSE:600732) Shares Could Introduce Price Risks After 68% Bounce

Despite an already strong run, Shanghai Aiko Solar Energy Co.,Ltd. (SHSE:600732) shares have been powering on, with a gain of 68% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Although its price has surged higher, Shanghai Aiko Solar EnergyLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.2x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 7.7x and even P/S higher than 14x aren't out of the ordinary. 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 Shanghai Aiko Solar EnergyLtd

How Shanghai Aiko Solar EnergyLtd Has Been Performing

Shanghai Aiko Solar EnergyLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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 Shanghai Aiko Solar EnergyLtd.

Is There Any Revenue Growth Forecasted For Shanghai Aiko Solar EnergyLtd?

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

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 61%. As a result, revenue from three years ago have also fallen 15% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 168% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 43%, which is noticeably less attractive.

With this information, we find it odd that Shanghai Aiko Solar EnergyLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Shanghai Aiko Solar EnergyLtd's P/S

Shanghai Aiko Solar EnergyLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

A look at Shanghai Aiko Solar EnergyLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai Aiko Solar EnergyLtd (of which 1 is significant!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.