Triductor Technology (Suzhou) Inc.'s (SHSE:688259) 46% Share Price Surge Not Quite Adding Up

Despite an already strong run, Triductor Technology (Suzhou) Inc. (SHSE:688259) shares have been powering on, with a gain of 46% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

After such a large jump in price, Triductor Technology (Suzhou) may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 7.5x, since almost half of all companies in the Semiconductor in China have P/S ratios under 6.2x 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 elevated P/S.

Check out our latest analysis for Triductor Technology (Suzhou)

How Has Triductor Technology (Suzhou) Performed Recently?

For instance, Triductor Technology (Suzhou)'s receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Triductor Technology (Suzhou), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Triductor Technology (Suzhou)'s Revenue Growth Trending?

In order to justify its P/S ratio, Triductor Technology (Suzhou) would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. Still, the latest three year period has seen an excellent 120% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 36% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that Triductor Technology (Suzhou)'s P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Triductor Technology (Suzhou)'s P/S?

Triductor Technology (Suzhou)'s P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Triductor Technology (Suzhou) revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Triductor Technology (Suzhou) (2 shouldn't be ignored) you should be aware of.

If you're unsure about the strength of Triductor Technology (Suzhou)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.