Sun Create Electronics Co., Ltd (SHSE:600990) Stock Catapults 26% Though Its Price And Business Still Lag The Industry

Sun Create Electronics Co., Ltd (SHSE:600990) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Although its price has surged higher, Sun Create Electronics' price-to-sales (or "P/S") ratio of 2.8x might still make it look like a buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 3.9x and even P/S above 7x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Sun Create Electronics

How Has Sun Create Electronics Performed Recently?

Sun Create Electronics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 Sun Create Electronics will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Sun Create Electronics?

The only time you'd be truly comfortable seeing a P/S as low as Sun Create Electronics' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. As a result, revenue from three years ago have also fallen 54% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 37% over the next year. Meanwhile, the rest of the industry is forecast to expand by 42%, which is noticeably more attractive.

With this information, we can see why Sun Create Electronics 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

The latest share price surge wasn't enough to lift Sun Create Electronics' P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Sun Create Electronics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. 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 1 warning sign for Sun Create Electronics that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.