Stock Analysis

Suzhou Jinfu Technology Co., Ltd.'s (SZSE:300128) 26% Price Boost Is Out Of Tune With Revenues

SZSE:300128
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Suzhou Jinfu Technology Co., Ltd. (SZSE:300128) shares have continued their recent momentum with a 26% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Suzhou Jinfu Technology's P/S ratio of 3.8x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 4.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Suzhou Jinfu Technology

ps-multiple-vs-industry
SZSE:300128 Price to Sales Ratio vs Industry November 19th 2024

How Has Suzhou Jinfu Technology Performed Recently?

Suzhou Jinfu Technology has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Suzhou Jinfu Technology will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Suzhou Jinfu Technology?

Suzhou Jinfu Technology's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Suzhou Jinfu Technology's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Suzhou Jinfu Technology's P/S Mean For Investors?

Its shares have lifted substantially and now Suzhou Jinfu Technology's P/S is back within range of the industry median. 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.

Our examination of Suzhou Jinfu Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Suzhou Jinfu Technology (at least 2 which are potentially serious), and understanding them should be part of your investment process.

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

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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.