Market Participants Recognise Shenzhen Sinovatio Technology Co., Ltd.'s (SZSE:002912) Revenues Pushing Shares 25% Higher

Shenzhen Sinovatio Technology Co., Ltd. (SZSE:002912) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 44%.

Following the firm bounce in price, when almost half of the companies in China's Tech industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Shenzhen Sinovatio Technology as a stock not worth researching with its 8.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Shenzhen Sinovatio Technology

How Shenzhen Sinovatio Technology Has Been Performing

Shenzhen Sinovatio Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shenzhen Sinovatio Technology'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 12%. As a result, revenue from three years ago have also fallen 35% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 37% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 18%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Shenzhen Sinovatio Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Shenzhen Sinovatio Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shenzhen Sinovatio Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Tech industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Shenzhen Sinovatio Technology that you should be aware of.

If you're unsure about the strength of Shenzhen Sinovatio 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.