Optimistic Investors Push Huizhou Speed Wireless Technology Co.,Ltd. (SZSE:300322) Shares Up 54% But Growth Is Lacking

Huizhou Speed Wireless Technology Co.,Ltd. (SZSE:300322) shares have continued their recent momentum with a 54% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Huizhou Speed Wireless TechnologyLtd's P/S ratio of 4.1x, since the median price-to-sales (or "P/S") ratio for the Communications industry in China is also close to 4.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Huizhou Speed Wireless TechnologyLtd

How Has Huizhou Speed Wireless TechnologyLtd Performed Recently?

Huizhou Speed Wireless TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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 not quite in favour.

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 Huizhou Speed Wireless TechnologyLtd's earnings, revenue and cash flow.

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

The only time you'd be comfortable seeing a P/S like Huizhou Speed Wireless TechnologyLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 17% in total over the last three years. 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 42% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Huizhou Speed Wireless TechnologyLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Its shares have lifted substantially and now Huizhou Speed Wireless TechnologyLtd's P/S is back within range of the industry median. 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.

Our look at Huizhou Speed Wireless TechnologyLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for Huizhou Speed Wireless TechnologyLtd you should be aware of.

If you're unsure about the strength of Huizhou Speed Wireless TechnologyLtd'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.