SVG Tech Group Co.,Ltd.'s (SZSE:300331) 26% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, SVG Tech Group Co.,Ltd. (SZSE:300331) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 8.7% isn't as impressive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about SVG Tech GroupLtd's P/S ratio of 3.7x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 4.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for SVG Tech GroupLtd

How Has SVG Tech GroupLtd Performed Recently?

The revenue growth achieved at SVG Tech GroupLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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.

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

How Is SVG Tech GroupLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like SVG Tech GroupLtd'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 13%. Revenue has also lifted 14% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that SVG Tech GroupLtd's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

SVG Tech GroupLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 examination of SVG Tech GroupLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you take the next step, you should know about the 2 warning signs for SVG Tech GroupLtd (1 is potentially serious!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.