Shenzhen Fine Made Electronics Group Co., Ltd. (SZSE:300671) Stock Rockets 37% As Investors Are Less Pessimistic Than Expected

The Shenzhen Fine Made Electronics Group Co., Ltd. (SZSE:300671) share price has done very well over the last month, posting an excellent gain of 37%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Following the firm bounce in price, Shenzhen Fine Made Electronics Group may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 9.8x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 5.6x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Shenzhen Fine Made Electronics Group

What Does Shenzhen Fine Made Electronics Group's Recent Performance Look Like?

The revenue growth achieved at Shenzhen Fine Made Electronics Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Fine Made Electronics Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Shenzhen Fine Made Electronics Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Still, lamentably revenue has fallen 29% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

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 alarming that Shenzhen Fine Made Electronics Group's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very 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 Key Takeaway

Shares in Shenzhen Fine Made Electronics Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shenzhen Fine Made Electronics Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Before you take the next step, you should know about the 1 warning sign for Shenzhen Fine Made Electronics Group that we have uncovered.

If these risks are making you reconsider your opinion on Shenzhen Fine Made Electronics Group, 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.

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