Little Excitement Around Shaanxi Fenghuo Electronics Co., Ltd.'s (SZSE:000561) Revenues

Shaanxi Fenghuo Electronics Co., Ltd.'s (SZSE:000561) price-to-sales (or "P/S") ratio of 2.9x might make it look like a buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 3.9x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Shaanxi Fenghuo Electronics

What Does Shaanxi Fenghuo Electronics' P/S Mean For Shareholders?

Shaanxi Fenghuo Electronics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Shaanxi Fenghuo Electronics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shaanxi Fenghuo Electronics' Revenue Growth Trending?

Shaanxi Fenghuo Electronics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. This means it has also seen a slide in revenue over the longer-term as revenue is down 9.5% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 41% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 48%, which is noticeably more attractive.

In light of this, it's understandable that Shaanxi Fenghuo Electronics' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Shaanxi Fenghuo Electronics' P/S Mean For Investors?

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.

As we suspected, our examination of Shaanxi Fenghuo Electronics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shaanxi Fenghuo Electronics you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com