Unpleasant Surprises Could Be In Store For Zhuhai Bojay Electronics Co.,Ltd.'s (SZSE:002975) Shares

With a median price-to-sales (or "P/S") ratio of close to 4.2x in the Electronic industry in China, you could be forgiven for feeling indifferent about Zhuhai Bojay Electronics Co.,Ltd.'s (SZSE:002975) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Zhuhai Bojay ElectronicsLtd

What Does Zhuhai Bojay ElectronicsLtd's Recent Performance Look Like?

The recent revenue growth at Zhuhai Bojay ElectronicsLtd would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Zhuhai Bojay ElectronicsLtd's earnings, revenue and cash flow.

How Is Zhuhai Bojay ElectronicsLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Zhuhai Bojay ElectronicsLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.0%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 12% 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.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 26% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Zhuhai Bojay ElectronicsLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that Zhuhai Bojay ElectronicsLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 1 warning sign for Zhuhai Bojay ElectronicsLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Zhuhai Bojay ElectronicsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.