Sentiment Still Eluding Shenzhen Gongjin Electronics Co., Ltd. (SHSE:603118)

Shenzhen Gongjin Electronics Co., Ltd.'s (SHSE:603118) price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 4.2x and even P/S above 8x 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.

See our latest analysis for Shenzhen Gongjin Electronics

How Shenzhen Gongjin Electronics Has Been Performing

While the industry has experienced revenue growth lately, Shenzhen Gongjin Electronics' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Shenzhen Gongjin Electronics' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Shenzhen Gongjin Electronics would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 47% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 48%, which is not materially different.

With this in consideration, we find it intriguing that Shenzhen Gongjin Electronics' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Shenzhen Gongjin Electronics' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shenzhen Gongjin Electronics (1 is potentially serious) you should be aware of.

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.