Stock Analysis

Shenzhen Emperor Technology Co., Ltd.'s (SZSE:300546) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

SZSE:300546
Source: Shutterstock

Shenzhen Emperor Technology Co., Ltd. (SZSE:300546) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Indeed, the recent drop has reduced its annual gain to a relatively sedate 4.3% over the last twelve months.

In spite of the heavy fall in price, given around half the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.9x, you may still consider Shenzhen Emperor Technology as a stock to avoid entirely with its 6.4x P/S ratio. 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.

Check out our latest analysis for Shenzhen Emperor Technology

ps-multiple-vs-industry
SZSE:300546 Price to Sales Ratio vs Industry January 12th 2025

How Shenzhen Emperor Technology Has Been Performing

For example, consider that Shenzhen Emperor Technology's financial performance has been poor lately as its revenue has been in decline. 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Shenzhen Emperor Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shenzhen Emperor Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Shenzhen Emperor Technology's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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.

The Final Word

Shenzhen Emperor Technology's shares may have suffered, but its P/S remains high. 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 Shenzhen Emperor Technology 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. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Shenzhen Emperor Technology that we have uncovered.

If you're unsure about the strength of Shenzhen Emperor Technology'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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

About SZSE:300546

Shenzhen Emperor Technology

Operates as an identity products and solutions provider worldwide.

Flawless balance sheet very low.

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