Sunyes Manufacturing (Zhejiang) Holding Co., Ltd.'s (SZSE:002388) Share Price Boosted 30% But Its Business Prospects Need A Lift Too

Sunyes Manufacturing (Zhejiang) Holding Co., Ltd. (SZSE:002388) shares have continued their recent momentum with a 30% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Even after such a large jump in price, Sunyes Manufacturing (Zhejiang) Holding may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Electronic industry in China have P/S ratios greater than 4.5x and even P/S higher than 9x 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 Sunyes Manufacturing (Zhejiang) Holding

What Does Sunyes Manufacturing (Zhejiang) Holding's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Sunyes Manufacturing (Zhejiang) Holding, which is generally not a bad outcome. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sunyes Manufacturing (Zhejiang) Holding will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Sunyes Manufacturing (Zhejiang) Holding?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Sunyes Manufacturing (Zhejiang) Holding's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.6%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.6% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this information, we are not surprised that Sunyes Manufacturing (Zhejiang) Holding is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Shares in Sunyes Manufacturing (Zhejiang) Holding have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of Sunyes Manufacturing (Zhejiang) Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You always need to take note of risks, for example - Sunyes Manufacturing (Zhejiang) Holding has 2 warning signs we think 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.