Investors Still Aren't Entirely Convinced By Shenzhen Division Co.,Ltd.'s (SZSE:300167) Revenues Despite 61% Price Jump

Shenzhen Division Co.,Ltd. (SZSE:300167) shares have continued their recent momentum with a 61% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.

Even after such a large jump in price, Shenzhen DivisionLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 5.6x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Shenzhen DivisionLtd

How Has Shenzhen DivisionLtd Performed Recently?

With revenue growth that's exceedingly strong of late, Shenzhen DivisionLtd has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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 Shenzhen DivisionLtd's earnings, revenue and cash flow.

How Is Shenzhen DivisionLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Shenzhen DivisionLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 61% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 138% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 32% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Shenzhen DivisionLtd is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Shenzhen DivisionLtd's P/S?

Even after such a strong price move, Shenzhen DivisionLtd's P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Shenzhen DivisionLtd revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Shenzhen DivisionLtd.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.