Cetc Potevio Science&Technology Co.,Ltd. (SZSE:002544) Shares Fly 43% But Investors Aren't Buying For Growth

Cetc Potevio Science&Technology Co.,Ltd. (SZSE:002544) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.5% isn't as impressive.

In spite of the firm bounce in price, Cetc Potevio Science&TechnologyLtd's price-to-sales (or "P/S") ratio of 3x might still make it look like a buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 4.7x 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.

See our latest analysis for Cetc Potevio Science&TechnologyLtd

How Has Cetc Potevio Science&TechnologyLtd Performed Recently?

While the industry has experienced revenue growth lately, Cetc Potevio Science&TechnologyLtd's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

Keen to find out how analysts think Cetc Potevio Science&TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Cetc Potevio Science&TechnologyLtd's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. This means it has also seen a slide in revenue over the longer-term as revenue is down 20% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 24% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 42%, which is noticeably more attractive.

With this in consideration, its clear as to why Cetc Potevio Science&TechnologyLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Cetc Potevio Science&TechnologyLtd's P/S Mean For Investors?

Despite Cetc Potevio Science&TechnologyLtd's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of Cetc Potevio Science&TechnologyLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Cetc Potevio Science&TechnologyLtd that you should be aware of.

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.