LianChuang Electronic Technology Co.,Ltd (SZSE:002036) Held Back By Insufficient Growth Even After Shares Climb 46%

LianChuang Electronic Technology Co.,Ltd (SZSE:002036) shareholders would be excited to see that the share price has had a great month, posting a 46% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 73% in the last year.

Even after such a large jump in price, LianChuang Electronic TechnologyLtd's price-to-sales (or "P/S") ratio of 1.3x might still make it look like a strong buy right now compared to the wider Electronic industry in China, where around half of the companies have P/S ratios above 4.6x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for LianChuang Electronic TechnologyLtd

What Does LianChuang Electronic TechnologyLtd's Recent Performance Look Like?

LianChuang Electronic TechnologyLtd could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

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.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.8% last year. The solid recent performance means it was also able to grow revenue by 17% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 16% as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

With this information, we can see why LianChuang Electronic TechnologyLtd is trading at a P/S lower than the industry. 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 LianChuang Electronic TechnologyLtd's P/S?

Even after such a strong price move, LianChuang Electronic TechnologyLtd's P/S still trails the rest of the industry. 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 LianChuang Electronic TechnologyLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for LianChuang Electronic TechnologyLtd (1 is concerning) you should be aware of.

If you're unsure about the strength of LianChuang Electronic TechnologyLtd'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.