Further Upside For Shenzhen Neoway Technology Co.,Ltd. (SHSE:688159) Shares Could Introduce Price Risks After 52% Bounce

Shenzhen Neoway Technology Co.,Ltd. (SHSE:688159) shareholders would be excited to see that the share price has had a great month, posting a 52% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.4% in the last twelve months.

In spite of the firm bounce in price, Shenzhen Neoway TechnologyLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 4.7x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Shenzhen Neoway TechnologyLtd

What Does Shenzhen Neoway TechnologyLtd's P/S Mean For Shareholders?

Recent times have been quite advantageous for Shenzhen Neoway TechnologyLtd as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 151% last year. The latest three year period has also seen an excellent 222% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 42%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Shenzhen Neoway TechnologyLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Shenzhen Neoway TechnologyLtd's P/S

Shenzhen Neoway TechnologyLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see Shenzhen Neoway TechnologyLtd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Shenzhen Neoway TechnologyLtd that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.