There's Reason For Concern Over Shenzhen Xunjiexing Technology Corp. Ltd.'s (SHSE:688655) Massive 40% Price Jump

Shenzhen Xunjiexing Technology Corp. Ltd. (SHSE:688655) shareholders would be excited to see that the share price has had a great month, posting a 40% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Even after such a large jump in price, there still wouldn't be many who think Shenzhen Xunjiexing Technology's price-to-sales (or "P/S") ratio of 3.4x is worth a mention when the median P/S in China's Electronic industry is similar at about 4x. 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 Shenzhen Xunjiexing Technology

What Does Shenzhen Xunjiexing Technology's P/S Mean For Shareholders?

The revenue growth achieved at Shenzhen Xunjiexing Technology over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Shenzhen Xunjiexing Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Xunjiexing Technology's earnings, revenue and cash flow.

How Is Shenzhen Xunjiexing Technology's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Shenzhen Xunjiexing Technology's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. Still, lamentably revenue has fallen 11% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Shenzhen Xunjiexing Technology's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 the recent negative growth rates.

The Bottom Line On Shenzhen Xunjiexing Technology's P/S

Shenzhen Xunjiexing Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Shenzhen Xunjiexing Technology currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 4 warning signs we've spotted with Shenzhen Xunjiexing Technology (including 2 which make us uncomfortable).

If you're unsure about the strength of Shenzhen Xunjiexing Technology'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.