Wuxi DK Electronic Materials Co.,Ltd. (SZSE:300842) Held Back By Insufficient Growth Even After Shares Climb 26%

Wuxi DK Electronic Materials Co.,Ltd. (SZSE:300842) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 73%.

In spite of the firm bounce in price, Wuxi DK Electronic MaterialsLtd's price-to-sales (or "P/S") ratio of 0.9x might still make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 6.6x and even P/S above 12x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Wuxi DK Electronic MaterialsLtd

What Does Wuxi DK Electronic MaterialsLtd's P/S Mean For Shareholders?

Wuxi DK Electronic MaterialsLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuxi DK Electronic MaterialsLtd.

Is There Any Revenue Growth Forecasted For Wuxi DK Electronic MaterialsLtd?

In order to justify its P/S ratio, Wuxi DK Electronic MaterialsLtd would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 155% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 31% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why Wuxi DK Electronic MaterialsLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Even after such a strong price move, Wuxi DK Electronic MaterialsLtd's P/S still trails the rest of the industry. 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 Wuxi DK Electronic MaterialsLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these 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 3 warning signs for Wuxi DK Electronic MaterialsLtd (2 can't be ignored!) that you need to take into consideration.

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

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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.