Appotronics Corporation Limited's (SHSE:688007) 43% Price Boost Is Out Of Tune With Revenues

Appotronics Corporation Limited (SHSE:688007) shares have had a really impressive month, gaining 43% 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 30% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Appotronics' P/S ratio of 4x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Appotronics

What Does Appotronics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Appotronics' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Appotronics' is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.3%. As a result, revenue from three years ago have also fallen 5.0% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 23% as estimated by the six analysts watching the company. With the industry predicted to deliver 26% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Appotronics is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Appotronics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 look at the analysts forecasts of Appotronics' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Appotronics that you should be aware of.

If these risks are making you reconsider your opinion on Appotronics, 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.