Shenzhen Sunshine Laser & Electronics Technology Co., Ltd.'s (SZSE:300227) Shares Climb 57% But Its Business Is Yet to Catch Up

Shenzhen Sunshine Laser & Electronics Technology Co., Ltd. (SZSE:300227) shares have continued their recent momentum with a 57% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 31%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shenzhen Sunshine Laser & Electronics Technology's P/S ratio of 4.9x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 4.5x. 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 Shenzhen Sunshine Laser & Electronics Technology

What Does Shenzhen Sunshine Laser & Electronics Technology's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Shenzhen Sunshine Laser & Electronics Technology, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on Shenzhen Sunshine Laser & Electronics Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Shenzhen Sunshine Laser & Electronics Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Shenzhen Sunshine Laser & Electronics 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 managed to grow revenues by a handy 5.4% last year. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Shenzhen Sunshine Laser & Electronics Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Shenzhen Sunshine Laser & Electronics Technology's P/S Mean For Investors?

Shenzhen Sunshine Laser & Electronics Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Shenzhen Sunshine Laser & Electronics 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.

Before you take the next step, you should know about the 3 warning signs for Shenzhen Sunshine Laser & Electronics Technology (2 shouldn't be ignored!) that we have uncovered.

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.