Shenzhen Refond Optoelectronics Co.,Ltd.'s (SZSE:300241) Revenues Are Not Doing Enough For Some Investors

You may think that with a price-to-sales (or "P/S") ratio of 2.2x Shenzhen Refond Optoelectronics Co.,Ltd. (SZSE:300241) is definitely a stock worth checking out, seeing as almost half of all the Semiconductor companies in China have P/S ratios greater than 5.2x and even P/S above 9x 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 highly reduced P/S.

See our latest analysis for Shenzhen Refond OptoelectronicsLtd

How Has Shenzhen Refond OptoelectronicsLtd Performed Recently?

Shenzhen Refond OptoelectronicsLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced 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 Refond OptoelectronicsLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Shenzhen Refond OptoelectronicsLtd?

In order to justify its P/S ratio, Shenzhen Refond OptoelectronicsLtd would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.2% last year. The latest three year period has also seen a 6.8% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 34% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Shenzhen Refond OptoelectronicsLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

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 Refond OptoelectronicsLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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 1 warning sign for Shenzhen Refond OptoelectronicsLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Shenzhen Refond OptoelectronicsLtd, 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.