Sunyes Manufacturing (Zhejiang) Holding Co., Ltd.'s (SZSE:002388) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Sunyes Manufacturing (Zhejiang) Holding Co., Ltd. (SZSE:002388) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

Although its price has surged higher, Sunyes Manufacturing (Zhejiang) Holding's price-to-sales (or "P/S") ratio of 0.9x 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 3.2x and even P/S above 6x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Sunyes Manufacturing (Zhejiang) Holding

How Sunyes Manufacturing (Zhejiang) Holding Has Been Performing

The revenue growth achieved at Sunyes Manufacturing (Zhejiang) Holding over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Sunyes Manufacturing (Zhejiang) Holding will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Sunyes Manufacturing (Zhejiang) Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sunyes Manufacturing (Zhejiang) Holding's Revenue Growth Trending?

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 terrific increase of 19%. Still, revenue has fallen 2.5% in total from three years ago, which is quite 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 26% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Sunyes Manufacturing (Zhejiang) Holding's P/S

Sunyes Manufacturing (Zhejiang) Holding's recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Sunyes Manufacturing (Zhejiang) Holding maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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 Sunyes Manufacturing (Zhejiang) Holding 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 Sunyes Manufacturing (Zhejiang) Holding'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.