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

With a price-to-sales (or "P/S") ratio of 5.4x Shanghai Fortune Techgroup Co., Ltd. (SZSE:300493) may be sending bullish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios greater than 7.8x and even P/S higher than 13x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shanghai Fortune Techgroup

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

Recent revenue growth for Shanghai Fortune Techgroup has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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.

Is There Any Revenue Growth Forecasted For Shanghai Fortune Techgroup?

In order to justify its P/S ratio, Shanghai Fortune Techgroup would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Pleasingly, revenue has also lifted 45% in aggregate from three years ago, thanks to the last 12 months of growth. 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 only analyst watching the company. With the industry predicted to deliver 46% growth, the company is positioned for a weaker revenue result.

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 We Can Learn From Shanghai Fortune Techgroup's P/S?

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 Shanghai Fortune Techgroup's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. 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 is potentially serious!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.