Insufficient Growth At LianChuang Electronic Technology Co.,Ltd (SZSE:002036) Hampers Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.8x LianChuang Electronic Technology Co.,Ltd (SZSE:002036) is definitely a stock worth checking out, seeing as almost half of all the Electronic companies in China have P/S ratios greater than 3.5x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for LianChuang Electronic TechnologyLtd

How Has LianChuang Electronic TechnologyLtd Performed Recently?

While the industry has experienced revenue growth lately, LianChuang Electronic TechnologyLtd's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LianChuang Electronic TechnologyLtd.

Is There Any Revenue Growth Forecasted For LianChuang Electronic TechnologyLtd?

The only time you'd be truly comfortable seeing a P/S as depressed as LianChuang Electronic TechnologyLtd's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. Still, the latest three year period has seen an excellent 35% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

With this in consideration, its clear as to why LianChuang Electronic TechnologyLtd's 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.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that LianChuang Electronic TechnologyLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for LianChuang Electronic TechnologyLtd that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.