There's No Escaping Shaanxi Fenghuo Electronics Co., Ltd.'s (SZSE:000561) Muted Revenues Despite A 27% Share Price Rise

Despite an already strong run, Shaanxi Fenghuo Electronics Co., Ltd. (SZSE:000561) shares have been powering on, with a gain of 27% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 6.1% isn't as impressive.

Even after such a large jump in price, Shaanxi Fenghuo Electronics' price-to-sales (or "P/S") ratio of 4.1x might still 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 5.7x and even P/S above 10x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Shaanxi Fenghuo Electronics

How Shaanxi Fenghuo Electronics Has Been Performing

Shaanxi Fenghuo Electronics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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.

Retrospectively, the last year delivered a frustrating 8.6% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 6.7% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 35% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 39% growth forecast for the broader industry.

With this in consideration, its clear as to why Shaanxi Fenghuo Electronics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shaanxi Fenghuo Electronics' P/S?

Shaanxi Fenghuo Electronics' stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Shaanxi Fenghuo Electronics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Shaanxi Fenghuo Electronics that 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.