There's No Escaping Wutong Holding Group Co., Ltd.'s (SZSE:300292) Muted Revenues Despite A 25% Share Price Rise

Those holding Wutong Holding Group Co., Ltd. (SZSE:300292) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 110% in the last year.

Although its price has surged higher, Wutong Holding Group may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Communications industry in China have P/S ratios greater than 5.4x and even P/S higher than 10x aren't out of the ordinary. 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.

See our latest analysis for Wutong Holding Group

What Does Wutong Holding Group's Recent Performance Look Like?

Recent times have been quite advantageous for Wutong Holding Group as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Wutong Holding Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Wutong Holding Group's earnings, revenue and cash flow.

How Is Wutong Holding Group's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 34%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 1.8% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 34% shows it's an unpleasant look.

With this in mind, we understand why Wutong Holding Group's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Wutong Holding Group's P/S Mean For Investors?

Shares in Wutong Holding Group have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Wutong Holding Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Wutong Holding Group that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.