Shenzhen Anche Technologies Co., Ltd. (SZSE:300572) Stocks Shoot Up 38% But Its P/S Still Looks Reasonable

Those holding Shenzhen Anche Technologies Co., Ltd. (SZSE:300572) shares would be relieved that the share price has rebounded 38% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.8% over the last year.

After such a large jump in price, 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 Shenzhen Anche Technologies as a stock not worth researching with its 6x 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.

See our latest analysis for Shenzhen Anche Technologies

What Does Shenzhen Anche Technologies' P/S Mean For Shareholders?

Recent times have been advantageous for Shenzhen Anche Technologies as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Anche Technologies.

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 Shenzhen Anche Technologies' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 6.3% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 51% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 71% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this information, we can see why Shenzhen Anche Technologies is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Shenzhen Anche Technologies' P/S soaring as well. 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.

Our look into Shenzhen Anche 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 these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Shenzhen Anche Technologies that you should be aware of.

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.