Improved Revenues Required Before Wuxi Hodgen Technology Co., Ltd. (SZSE:300279) Stock's 35% Jump Looks Justified

Wuxi Hodgen Technology Co., Ltd. (SZSE:300279) shares have continued their recent momentum with a 35% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 2.4% isn't as attractive.

Although its price has surged higher, Wuxi Hodgen Technology's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a strong buy right now compared to the wider Electronic industry in China, where around half of the companies have P/S ratios above 4x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Wuxi Hodgen Technology

How Has Wuxi Hodgen Technology Performed Recently?

The revenue growth achieved at Wuxi Hodgen Technology over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Wuxi Hodgen 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 Wuxi Hodgen 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 Low P/S Ratio?

Wuxi Hodgen Technology's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a decent 9.4% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 5.4% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Wuxi Hodgen Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Wuxi Hodgen Technology's P/S?

Shares in Wuxi Hodgen Technology have risen appreciably however, its P/S is still subdued. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

In line with expectations, Wuxi Hodgen Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about this 1 warning sign we've spotted with Wuxi Hodgen Technology.

If you're unsure about the strength of Wuxi Hodgen 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.