Market Participants Recognise Shenzhen Sunline Tech Co., Ltd.'s (SZSE:300348) Revenues Pushing Shares 30% Higher

Shenzhen Sunline Tech Co., Ltd. (SZSE:300348) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last month tops off a massive increase of 108% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Shenzhen Sunline Tech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 7.5x, considering almost half the companies in China's IT industry have P/S ratios below 5.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Shenzhen Sunline Tech

How Has Shenzhen Sunline Tech Performed Recently?

Shenzhen Sunline Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Sunline Tech.

How Is Shenzhen Sunline Tech's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Shenzhen Sunline Tech's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.7% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 33% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 17%, which is noticeably less attractive.

With this information, we can see why Shenzhen Sunline Tech is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Shenzhen Sunline Tech's P/S Mean For Investors?

Shenzhen Sunline Tech's P/S is on the rise since its shares have risen strongly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shenzhen Sunline Tech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shenzhen Sunline Tech you should know about.

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.