Motorcomm Electronic Technology Co., Ltd.'s (SHSE:688515) 44% Jump Shows Its Popularity With Investors

Motorcomm Electronic Technology Co., Ltd. (SHSE:688515) shares have continued their recent momentum with a 44% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

After such a large jump in price, Motorcomm Electronic Technology may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 20.7x, 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. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Motorcomm Electronic Technology

How Motorcomm Electronic Technology Has Been Performing

With revenue growth that's superior to most other companies of late, Motorcomm Electronic Technology has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Motorcomm Electronic Technology.

Is There Enough Revenue Growth Forecasted For Motorcomm Electronic Technology?

The only time you'd be truly comfortable seeing a P/S as steep as Motorcomm Electronic Technology's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 40% last year. The latest three year period has also seen an excellent 48% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 58% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 42% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Motorcomm Electronic Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Motorcomm Electronic Technology's P/S?

Motorcomm Electronic Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Motorcomm Electronic Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Motorcomm Electronic Technology (1 is a bit concerning!) that we have uncovered.

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.