SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) Shares Fly 26% But Investors Aren't Buying For Growth

SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

In spite of the firm bounce in price, SHENZHEN TOPRAYSOLARLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.5x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.1x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for SHENZHEN TOPRAYSOLARLtd

What Does SHENZHEN TOPRAYSOLARLtd's P/S Mean For Shareholders?

SHENZHEN TOPRAYSOLARLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SHENZHEN TOPRAYSOLARLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For SHENZHEN TOPRAYSOLARLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like SHENZHEN TOPRAYSOLARLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 6.9% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 36% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why SHENZHEN TOPRAYSOLARLtd's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From SHENZHEN TOPRAYSOLARLtd's P/S?

SHENZHEN TOPRAYSOLARLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of SHENZHEN TOPRAYSOLARLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for SHENZHEN TOPRAYSOLARLtd (1 is a bit concerning!) that you need to take into consideration.

If these risks are making you reconsider your opinion on SHENZHEN TOPRAYSOLARLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.