There's No Escaping Sunyes Manufacturing (Zhejiang) Holding Co., Ltd.'s (SZSE:002388) Muted Revenues

Sunyes Manufacturing (Zhejiang) Holding Co., Ltd.'s (SZSE:002388) price-to-sales (or "P/S") ratio of 0.9x might make it look like a strong buy right now compared to the Electronic industry in China, where around half of the companies have P/S ratios above 4.8x and even P/S above 9x 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.

Check out our latest analysis for Sunyes Manufacturing (Zhejiang) Holding

What Does Sunyes Manufacturing (Zhejiang) Holding's P/S Mean For Shareholders?

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.

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 Sunyes Manufacturing (Zhejiang) Holding's earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Sunyes Manufacturing (Zhejiang) Holding would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 1.4% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Sunyes Manufacturing (Zhejiang) Holding is trading at a P/S lower than the industry. 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.

What Does Sunyes Manufacturing (Zhejiang) Holding's P/S Mean For Investors?

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.

Our examination of Sunyes Manufacturing (Zhejiang) Holding 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. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Sunyes Manufacturing (Zhejiang) Holding you should know about.

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.