Shanghai Fortune Techgroup Co., Ltd.'s (SZSE:300493) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Despite an already strong run, Shanghai Fortune Techgroup Co., Ltd. (SZSE:300493) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

In spite of the firm bounce in price, Shanghai Fortune Techgroup may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.6x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.4x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Shanghai Fortune Techgroup

How Shanghai Fortune Techgroup Has Been Performing

Shanghai Fortune Techgroup's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Fortune Techgroup will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 43% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be materially lower than the 36% growth forecast for the broader industry.

With this information, we can see why Shanghai Fortune Techgroup is trading at a P/S lower than the industry. 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?

Shanghai Fortune Techgroup's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shanghai Fortune Techgroup that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.