MeiG Smart Technology Co., Ltd's (SZSE:002881) Price Is Right But Growth Is Lacking After Shares Rocket 34%

Despite an already strong run, MeiG Smart Technology Co., Ltd (SZSE:002881) shares have been powering on, with a gain of 34% in the last thirty days. The last month tops off a massive increase of 112% in the last year.

In spite of the firm bounce in price, MeiG Smart Technology may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.8x, considering almost half of all companies in the Communications industry in China have P/S ratios greater than 4.8x and even P/S higher than 9x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for MeiG Smart Technology

How MeiG Smart Technology Has Been Performing

Recent times have been advantageous for MeiG Smart Technology as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on MeiG Smart Technology will help you uncover what's on the horizon.

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 MeiG Smart Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The latest three year period has also seen an excellent 58% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 23% as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader industry.

With this in consideration, its clear as to why MeiG Smart Technology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From MeiG Smart Technology's P/S?

MeiG Smart Technology's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that MeiG Smart Technology maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for MeiG Smart Technology with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of MeiG Smart Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.