Huizhou Speed Wireless Technology Co.,Ltd.'s (SZSE:300322) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

The Huizhou Speed Wireless Technology Co.,Ltd. (SZSE:300322) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 51%.

Even after such a large jump in price, Huizhou Speed Wireless TechnologyLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.1x, considering almost half of all companies in the Communications industry in China have P/S ratios greater than 3.9x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Huizhou Speed Wireless TechnologyLtd

How Has Huizhou Speed Wireless TechnologyLtd Performed Recently?

Revenue has risen firmly for Huizhou Speed Wireless TechnologyLtd recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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 Huizhou Speed Wireless TechnologyLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Huizhou Speed Wireless TechnologyLtd?

Huizhou Speed Wireless TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Still, lamentably revenue has fallen 17% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 46% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Huizhou Speed Wireless TechnologyLtd is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Huizhou Speed Wireless TechnologyLtd's P/S?

Huizhou Speed Wireless TechnologyLtd's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Huizhou Speed Wireless TechnologyLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Huizhou Speed Wireless TechnologyLtd that we have uncovered.

If these risks are making you reconsider your opinion on Huizhou Speed Wireless TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.