Improved Revenues Required Before Suzhou Victory Precision Manufacture Co., Ltd. (SZSE:002426) Stock's 33% Jump Looks Justified

Suzhou Victory Precision Manufacture Co., Ltd. (SZSE:002426) shares have had a really impressive month, gaining 33% after a shaky period beforehand. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Suzhou Victory Precision Manufacture may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.5x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 4.7x and even P/S higher than 10x are not unusual. 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 Suzhou Victory Precision Manufacture

How Has Suzhou Victory Precision Manufacture Performed Recently?

Revenue has risen at a steady rate over the last year for Suzhou Victory Precision Manufacture, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Suzhou Victory Precision Manufacture 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 Suzhou Victory Precision Manufacture, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Suzhou Victory Precision Manufacture'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.

Retrospectively, the last year delivered a decent 7.2% gain to the company's revenues. Still, lamentably revenue has fallen 42% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

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 Suzhou Victory Precision Manufacture 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.

What Does Suzhou Victory Precision Manufacture's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Suzhou Victory Precision Manufacture's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Suzhou Victory Precision Manufacture 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Suzhou Victory Precision Manufacture is showing 1 warning sign in our investment analysis, you should know about.

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.