Investors Appear Satisfied With Shengyi Electronics Co., Ltd.'s (SHSE:688183) Prospects As Shares Rocket 31%

Despite an already strong run, Shengyi Electronics Co., Ltd. (SHSE:688183) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 290% in the last year.

Following the firm bounce in price, Shengyi Electronics' price-to-sales (or "P/S") ratio of 8.7x might make it look like a strong sell right now compared to other companies in the Electronic industry in China, where around half of the companies have P/S ratios below 4.3x and even P/S below 2x are quite common. 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 Shengyi Electronics

How Has Shengyi Electronics Performed Recently?

Shengyi Electronics certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shengyi Electronics will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Shengyi Electronics?

Shengyi Electronics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. Revenue has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 18% each year, which is noticeably less attractive.

With this information, we can see why Shengyi Electronics is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Shengyi Electronics' P/S

Shengyi Electronics' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Shengyi Electronics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Shengyi Electronics (including 1 which is significant).

If these risks are making you reconsider your opinion on Shengyi 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.