Vanjee Technology Co., Ltd. (SZSE:300552) Stocks Pounded By 26% But Not Lagging Industry On Growth Or Pricing

Vanjee Technology Co., Ltd. (SZSE:300552) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 54%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for thinking Vanjee Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.7x, considering almost half the companies in China's Electronic industry have P/S ratios below 3.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Vanjee Technology

What Does Vanjee Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Vanjee Technology has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

The only time you'd be truly comfortable seeing a P/S as steep as Vanjee Technology's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 43% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 43% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

In light of this, it's understandable that Vanjee Technology'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 We Can Learn From Vanjee Technology's P/S?

Even after such a strong price drop, Vanjee Technology's P/S still exceeds the industry median significantly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Vanjee Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. 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.

Before you take the next step, you should know about the 1 warning sign for Vanjee Technology that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com