Broadex Technologies Co., Ltd. (SZSE:300548) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

Broadex Technologies Co., Ltd. (SZSE:300548) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 179% in the last year.

Since its price has surged higher, Broadex Technologies may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 9.9x, since almost half of all companies in the Communications industry in China have P/S ratios under 4.8x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Broadex Technologies

What Does Broadex Technologies' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Broadex Technologies' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Broadex Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Broadex Technologies?

In order to justify its P/S ratio, Broadex Technologies would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. Even so, admirably revenue has lifted 57% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 51% as estimated by the four analysts watching the company. With the industry only predicted to deliver 36%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Broadex Technologies' 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.

The Bottom Line On Broadex Technologies' P/S

Shares in Broadex Technologies have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Broadex Technologies 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Broadex Technologies that you should be aware 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.