Harbin Xinguang Optic-Electronics Technology Co.,Ltd.'s (SHSE:688011) 31% Price Boost Is Out Of Tune With Revenues

Those holding Harbin Xinguang Optic-Electronics Technology Co.,Ltd. (SHSE:688011) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Following the firm bounce in price, given around half the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider Harbin Xinguang Optic-Electronics TechnologyLtd as a stock to avoid entirely with its 10x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Harbin Xinguang Optic-Electronics TechnologyLtd

How Has Harbin Xinguang Optic-Electronics TechnologyLtd Performed Recently?

Revenue has risen at a steady rate over the last year for Harbin Xinguang Optic-Electronics TechnologyLtd, which is generally not a bad outcome. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Harbin Xinguang Optic-Electronics TechnologyLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Harbin Xinguang Optic-Electronics TechnologyLtd?

In order to justify its P/S ratio, Harbin Xinguang Optic-Electronics TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 7.0% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's alarming that Harbin Xinguang Optic-Electronics TechnologyLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Harbin Xinguang Optic-Electronics TechnologyLtd's P/S

Harbin Xinguang Optic-Electronics TechnologyLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Harbin Xinguang Optic-Electronics TechnologyLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Harbin Xinguang Optic-Electronics TechnologyLtd that you should be aware of.

If you're unsure about the strength of Harbin Xinguang Optic-Electronics TechnologyLtd'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.