Positive Sentiment Still Eludes Shengyi Electronics Co., Ltd. (SHSE:688183) Following 25% Share Price Slump

Shengyi Electronics Co., Ltd. (SHSE:688183) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The good news is that in the last year, the stock has shone bright like a diamond, gaining 232%.

Although its price has dipped substantially, it's still not a stretch to say that Shengyi Electronics' price-to-sales (or "P/S") ratio of 5.5x right now seems quite "middle-of-the-road" compared to the Electronic industry in China, where the median P/S ratio is around 4.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Shengyi Electronics

What Does Shengyi Electronics' P/S Mean For Shareholders?

Shengyi Electronics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Shengyi Electronics' 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?

Shengyi Electronics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. As a result, it also grew revenue by 16% 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.

Looking ahead now, revenue is anticipated to climb by 29% per year during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 16% per year growth forecast for the broader industry.

With this information, we find it interesting that Shengyi Electronics is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Shengyi Electronics' P/S

Shengyi Electronics' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shengyi Electronics currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware Shengyi Electronics is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.