Suzhou TFC Optical Communication Co., Ltd.'s (SZSE:300394) 27% Jump Shows Its Popularity With Investors

Despite an already strong run, Suzhou TFC Optical Communication Co., Ltd. (SZSE:300394) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 186% in the last year.

Since its price has surged higher, Suzhou TFC Optical Communication may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 31.2x, since almost half of all companies in the Communications industry in China have P/S ratios under 4.2x and even P/S lower than 2x 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 so lofty.

See our latest analysis for Suzhou TFC Optical Communication

What Does Suzhou TFC Optical Communication's Recent Performance Look Like?

Recent times have been advantageous for Suzhou TFC Optical Communication as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzhou TFC Optical Communication.

How Is Suzhou TFC Optical Communication's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Suzhou TFC Optical Communication's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The latest three year period has also seen an excellent 90% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 88% as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 48%, which is noticeably less attractive.

In light of this, it's understandable that Suzhou TFC Optical Communication's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Suzhou TFC Optical Communication's P/S Mean For Investors?

The strong share price surge has lead to Suzhou TFC Optical Communication's P/S soaring as well. 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 into Suzhou TFC Optical Communication shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Suzhou TFC Optical Communication you should be aware of.

If you're unsure about the strength of Suzhou TFC Optical Communication'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.