Genew Technologies Co.,Ltd. (SHSE:688418) Soars 34% But It's A Story Of Risk Vs Reward

Genew Technologies Co.,Ltd. (SHSE:688418) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.9% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Genew TechnologiesLtd's price-to-sales (or "P/S") ratio of 4.5x right now seems quite "middle-of-the-road" compared to the Communications industry in China, seeing as it matches the P/S ratio of the wider industry. 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.

See our latest analysis for Genew TechnologiesLtd

How Has Genew TechnologiesLtd Performed Recently?

Recent times have been advantageous for Genew TechnologiesLtd as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

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

Is There Some Revenue Growth Forecasted For Genew TechnologiesLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Genew TechnologiesLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an excellent 43% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 108% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 51%, which is noticeably less attractive.

In light of this, it's curious that Genew TechnologiesLtd's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Genew TechnologiesLtd's P/S Mean For Investors?

Genew TechnologiesLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, Genew TechnologiesLtd's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Genew TechnologiesLtd, and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.