SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) Shares Fly 29% But Investors Aren't Buying For Growth

Those holding SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 32% over that time.

Even after such a large jump in price, SHENZHEN TOPRAYSOLARLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.5x and even P/S higher than 12x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for SHENZHEN TOPRAYSOLARLtd

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

As an illustration, revenue has deteriorated at SHENZHEN TOPRAYSOLARLtd over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

SHENZHEN TOPRAYSOLARLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

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 19%. As a result, revenue from three years ago have also fallen 17% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 37% shows it's an unpleasant look.

In light of this, it's understandable that SHENZHEN TOPRAYSOLARLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On SHENZHEN TOPRAYSOLARLtd's P/S

Despite SHENZHEN TOPRAYSOLARLtd's share price climbing recently, its P/S still lags most other companies. 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.

It's no surprise that SHENZHEN TOPRAYSOLARLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 4 warning signs for SHENZHEN TOPRAYSOLARLtd you should be aware of, and 1 of them is a bit unpleasant.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.