SHENZHEN TOPRAYSOLAR Co.,Ltd.'s (SZSE:002218) 26% Price Boost Is Out Of Tune With Revenues

SHENZHEN TOPRAYSOLAR Co.,Ltd. (SZSE:002218) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Even after such a large jump in price, it's still not a stretch to say that SHENZHEN TOPRAYSOLARLtd's price-to-sales (or "P/S") ratio of 5x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in China, where the median P/S ratio is around 5.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for SHENZHEN TOPRAYSOLARLtd

How SHENZHEN TOPRAYSOLARLtd Has Been Performing

It looks like revenue growth has deserted SHENZHEN TOPRAYSOLARLtd recently, which is not something to boast about. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. 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 not quite in 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 Some Revenue Growth Forecasted For SHENZHEN TOPRAYSOLARLtd?

The only time you'd be comfortable seeing a P/S like SHENZHEN TOPRAYSOLARLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 24% overall from three years ago. 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 35% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that SHENZHEN TOPRAYSOLARLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 the recent negative growth rates.

The Final Word

SHENZHEN TOPRAYSOLARLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that SHENZHEN TOPRAYSOLARLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.