Insufficient Growth At Wuxi Hodgen Technology Co., Ltd. (SZSE:300279) Hampers Share Price

With a price-to-sales (or "P/S") ratio of 1.3x Wuxi Hodgen Technology Co., Ltd. (SZSE:300279) may be sending very bullish signals at the moment, given that almost half of all the Electronic companies in China have P/S ratios greater than 3.9x and even P/S higher than 8x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Wuxi Hodgen Technology

How Has Wuxi Hodgen Technology Performed Recently?

Revenue has risen at a steady rate over the last year for Wuxi Hodgen Technology, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For Wuxi Hodgen Technology?

The only time you'd be truly comfortable seeing a P/S as depressed as Wuxi Hodgen Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 2.6% gain to the company's revenues. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Wuxi Hodgen Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

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.

Our examination of Wuxi Hodgen Technology confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Wuxi Hodgen Technology with six simple checks.

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.