Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Suzhou Everbright Photonics Co., Ltd. (SHSE:688048) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Notwithstanding the latest gain, the annual share price return of 7.0% isn't as impressive.

Since its price has surged higher, Suzhou Everbright Photonics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 30.8x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 6.8x 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.

View our latest analysis for Suzhou Everbright Photonics

What Does Suzhou Everbright Photonics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Suzhou Everbright Photonics' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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?

The only time you'd be truly comfortable seeing a P/S as steep as Suzhou Everbright Photonics' is when the company's growth is on track to outshine 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 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. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 38% over the next year. With the industry predicted to deliver 50% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Suzhou Everbright Photonics is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Suzhou Everbright Photonics' P/S Mean For Investors?

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

We've concluded that Suzhou Everbright Photonics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

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