Bomin Electronics Co., Ltd.'s (SHSE:603936) Revenues Are Not Doing Enough For Some Investors

Bomin Electronics Co., Ltd.'s (SHSE:603936) price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the Electronic industry in China, where around half of the companies have P/S ratios above 3.6x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Bomin Electronics

How Bomin Electronics Has Been Performing

Bomin Electronics has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Bomin Electronics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Bomin Electronics' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 1.4% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Bomin Electronics' P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

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.

Our examination of Bomin Electronics confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Bomin Electronics (1 shouldn't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Bomin Electronics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.