There's No Escaping SVG Tech Group Co.,Ltd.'s (SZSE:300331) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 2.9x SVG Tech Group Co.,Ltd. (SZSE:300331) is a stock worth checking out, seeing as almost half of all the Electronic companies in China have P/S ratios greater than 4.7x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for SVG Tech GroupLtd

How SVG Tech GroupLtd Has Been Performing

Revenue has risen firmly for SVG Tech GroupLtd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on SVG Tech GroupLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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How Is SVG Tech GroupLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like SVG Tech GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. The latest three year period has also seen a 14% overall rise in revenue, aided somewhat 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 27% shows it's noticeably less attractive.

In light of this, it's understandable that SVG Tech GroupLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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 this 1 warning sign we've spotted with SVG Tech GroupLtd.

If you're unsure about the strength of SVG Tech GroupLtd'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.