Guangdong Faith Long Crystal Technology Co.,LTD.'s (SZSE:300460) 30% Price Boost Is Out Of Tune With Revenues

Guangdong Faith Long Crystal Technology Co.,LTD. (SZSE:300460) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Since its price has surged higher, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider Guangdong Faith Long Crystal TechnologyLTD as a stock not worth researching with its 6.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Guangdong Faith Long Crystal TechnologyLTD

What Does Guangdong Faith Long Crystal TechnologyLTD's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Guangdong Faith Long Crystal TechnologyLTD over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Guangdong Faith Long Crystal TechnologyLTD's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Guangdong Faith Long Crystal TechnologyLTD would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 9.6% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 25% shows it's noticeably less attractive.

With this information, we find it concerning that Guangdong Faith Long Crystal TechnologyLTD is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Guangdong Faith Long Crystal TechnologyLTD's P/S Mean For Investors?

Guangdong Faith Long Crystal TechnologyLTD's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Guangdong Faith Long Crystal TechnologyLTD revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Guangdong Faith Long Crystal TechnologyLTD is showing 4 warning signs in our investment analysis, you should know about.

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.