Suzhou Victory Precision Manufacture Co., Ltd. (SZSE:002426) Looks Inexpensive After Falling 28% But Perhaps Not Attractive Enough

The Suzhou Victory Precision Manufacture Co., Ltd. (SZSE:002426) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 34% in the last year.

Since its price has dipped substantially, Suzhou Victory Precision Manufacture's price-to-sales (or "P/S") ratio of 2.7x might make it look like a buy right now compared to the Electronic industry in China, where around half of the companies have P/S ratios above 4x and even P/S above 8x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Suzhou Victory Precision Manufacture

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

The recent revenue growth at Suzhou Victory Precision Manufacture would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.2% last year. Still, lamentably revenue has fallen 42% 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 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 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.

The Final Word

Suzhou Victory Precision Manufacture's recently weak share price has pulled its P/S back below other Electronic companies. 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.

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. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Suzhou Victory Precision Manufacture.

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.