SVG Tech Group Co.,Ltd.'s (SZSE:300331) Low P/S No Reason For Excitement

With a price-to-sales (or "P/S") ratio of 2.3x SVG Tech Group Co.,Ltd. (SZSE:300331) may be sending bullish signals at the moment, given that almost half of all the Electronic companies in China have P/S ratios greater than 3.1x and even P/S higher than 6x are not unusual. 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 SVG Tech GroupLtd

How Has SVG Tech GroupLtd Performed Recently?

Revenue has risen firmly for SVG Tech GroupLtd 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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 SVG Tech GroupLtd's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For SVG Tech GroupLtd?

The only time you'd be truly comfortable seeing a P/S as low as SVG Tech GroupLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. The latest three year period has also seen a 15% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why SVG Tech GroupLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

In line with expectations, SVG Tech GroupLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 2 warning signs we've spotted with SVG Tech GroupLtd (including 1 which can't be ignored).

If these risks are making you reconsider your opinion on SVG Tech GroupLtd, 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.