Shenzhen Coship Electronics Co., Ltd. (SZSE:002052) Stock Rockets 60% As Investors Are Less Pessimistic Than Expected

Shenzhen Coship Electronics Co., Ltd. (SZSE:002052) shares have had a really impressive month, gaining 60% after a shaky period beforehand. The annual gain comes to 176% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Shenzhen Coship Electronics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 17.5x, when you consider almost half of the companies in the Communications industry in China have P/S ratios under 5.6x and even P/S lower than 2x 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 elevated P/S.

See our latest analysis for Shenzhen Coship Electronics

What Does Shenzhen Coship Electronics' P/S Mean For Shareholders?

For instance, Shenzhen Coship Electronics' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Coship Electronics will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Shenzhen Coship Electronics?

Shenzhen Coship Electronics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. Still, the latest three year period has seen an excellent 66% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 32% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Shenzhen Coship Electronics is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 recent growth rates.

The Bottom Line On Shenzhen Coship Electronics' P/S

Shares in Shenzhen Coship Electronics have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Shenzhen Coship Electronics revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Coship Electronics (1 is a bit concerning!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.