Broadex Technologies Co., Ltd. (SZSE:300548) Soars 33% But It's A Story Of Risk Vs Reward

Broadex Technologies Co., Ltd. (SZSE:300548) shares have continued their recent momentum with a 33% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 10.0% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that Broadex Technologies' price-to-sales (or "P/S") ratio of 5.3x right now seems quite "middle-of-the-road" compared to the Communications industry in China, where the median P/S ratio is around 5.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Broadex Technologies

What Does Broadex Technologies' Recent Performance Look Like?

Broadex Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Broadex Technologies will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Broadex Technologies' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. Still, the latest three year period has seen an excellent 57% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 51% over the next year. With the industry only predicted to deliver 37%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Broadex Technologies' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Broadex Technologies' P/S

Broadex Technologies' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Broadex Technologies currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Broadex Technologies that you need to be mindful of.

If these risks are making you reconsider your opinion on Broadex Technologies, 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.