Shenzhen Zowee Technology Co., Ltd. (SZSE:002369) Held Back By Insufficient Growth Even After Shares Climb 46%

Shenzhen Zowee Technology Co., Ltd. (SZSE:002369) shares have continued their recent momentum with a 46% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 68% in the last year.

Even after such a large jump in price, Shenzhen Zowee Technology's price-to-sales (or "P/S") ratio of 3.1x 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 5.5x 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 reduced P/S.

Check out our latest analysis for Shenzhen Zowee Technology

How Has Shenzhen Zowee Technology Performed Recently?

The recent revenue growth at Shenzhen Zowee Technology would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If you 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Zowee Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Shenzhen Zowee Technology?

Shenzhen Zowee Technology's 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, we see that the company managed to grow revenues by a handy 6.1% last year. Still, lamentably revenue has fallen 37% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 37% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Shenzhen Zowee Technology's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Shenzhen Zowee Technology's P/S

Despite Shenzhen Zowee Technology's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Shenzhen Zowee Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Shenzhen Zowee Technology is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

If you're unsure about the strength of Shenzhen Zowee Technology'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.