Shanghai Fortune Techgroup Co., Ltd. (SZSE:300493) Surges 48% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Shanghai Fortune Techgroup Co., Ltd. (SZSE:300493) shares have been powering on, with a gain of 48% in the last thirty days. The last month tops off a massive increase of 208% in the last year.

Even after such a large jump in price, Shanghai Fortune Techgroup's price-to-sales (or "P/S") ratio of 5.4x might still make it look like a buy right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios above 7.2x and even P/S above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Shanghai Fortune Techgroup

How Shanghai Fortune Techgroup Has Been Performing

Shanghai Fortune Techgroup certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Shanghai Fortune Techgroup's future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be truly comfortable seeing a P/S as low as Shanghai Fortune Techgroup's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The latest three year period has also seen an excellent 45% 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 8.0% as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 47% growth forecast for the broader industry.

With this in consideration, its clear as to why Shanghai Fortune Techgroup's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Shanghai Fortune Techgroup's P/S Mean For Investors?

Despite Shanghai Fortune Techgroup's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Shanghai Fortune Techgroup maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai Fortune Techgroup (of which 1 makes us a bit uncomfortable!) you should know about.

If you're unsure about the strength of Shanghai Fortune Techgroup's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.