Revenues Not Telling The Story For Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) After Shares Rise 33%

Despite an already strong run, Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) shares have been powering on, with a gain of 33% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Following the firm bounce in price, Suzhou Everbright Photonics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 30.7x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 7.4x and even P/S lower than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Suzhou Everbright Photonics

How Has Suzhou Everbright Photonics Performed Recently?

While the industry has experienced revenue growth lately, Suzhou Everbright Photonics' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Suzhou Everbright Photonics?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Suzhou Everbright Photonics' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.8%. This means it has also seen a slide in revenue over the longer-term as revenue is down 36% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 38% as estimated by the five analysts watching the company. With the industry predicted to deliver 42% growth , the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Suzhou Everbright Photonics' P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Key Takeaway

Shares in Suzhou Everbright Photonics have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Suzhou Everbright Photonics currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Suzhou Everbright Photonics has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.