There's No Escaping Huizhou Speed Wireless Technology Co.,Ltd.'s (SZSE:300322) Muted Revenues Despite A 39% Share Price Rise

Huizhou Speed Wireless Technology Co.,Ltd. (SZSE:300322) shares have had a really impressive month, gaining 39% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Even after such a large jump in price, Huizhou Speed Wireless TechnologyLtd's price-to-sales (or "P/S") ratio of 3.3x might still make it look like a buy right now compared to the Communications industry in China, where around half of the companies have P/S ratios above 4.4x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Huizhou Speed Wireless TechnologyLtd

How Huizhou Speed Wireless TechnologyLtd Has Been Performing

For example, consider that Huizhou Speed Wireless TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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.

How Is Huizhou Speed Wireless TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Huizhou Speed Wireless TechnologyLtd would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.5%. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% 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 50% 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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

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

Despite Huizhou Speed Wireless TechnologyLtd's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Huizhou Speed Wireless TechnologyLtd maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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.

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 strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.