A Piece Of The Puzzle Missing From WG TECH (Jiang Xi) Co., Ltd.'s (SHSE:603773) 25% Share Price Climb

The WG TECH (Jiang Xi) Co., Ltd. (SHSE:603773) share price has done very well over the last month, posting an excellent gain of 25%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.3% in the last twelve months.

In spite of the firm bounce in price, WG TECH (Jiang Xi) may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.5x, considering almost half of all companies in the Electronic industry in China have P/S ratios greater than 4.3x and even P/S higher than 8x aren't out of the ordinary. 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 WG TECH (Jiang Xi)

What Does WG TECH (Jiang Xi)'s Recent Performance Look Like?

WG TECH (Jiang Xi) 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 you 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on WG TECH (Jiang Xi).

Do Revenue Forecasts Match The Low P/S Ratio?

WG TECH (Jiang Xi)'s P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 40% last year. Pleasingly, revenue has also lifted 160% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 40% over the next year. With the industry only predicted to deliver 27%, the company is positioned for a stronger revenue result.

With this information, we find it odd that WG TECH (Jiang Xi) is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From WG TECH (Jiang Xi)'s P/S?

The latest share price surge wasn't enough to lift WG TECH (Jiang Xi)'s P/S close to the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems WG TECH (Jiang Xi) currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for WG TECH (Jiang Xi) (1 doesn't sit too well with us!) that we have uncovered.

If you're unsure about the strength of WG TECH (Jiang Xi)'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.