The Market Lifts XiaMen HongXin Electron-tech Group Co.,Ltd (SZSE:300657) Shares 41% But It Can Do More

XiaMen HongXin Electron-tech Group Co.,Ltd (SZSE:300657) shares have had a really impressive month, gaining 41% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 3.4% isn't as attractive.

In spite of the firm bounce in price, XiaMen HongXin Electron-tech GroupLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Electronic industry in China have P/S ratios greater than 4x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for XiaMen HongXin Electron-tech GroupLtd

What Does XiaMen HongXin Electron-tech GroupLtd's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, XiaMen HongXin Electron-tech GroupLtd has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think XiaMen HongXin Electron-tech GroupLtd'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 Low P/S?

In order to justify its P/S ratio, XiaMen HongXin Electron-tech GroupLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 82% gain to the company's top line. Pleasingly, revenue has also lifted 62% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 58% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's peculiar that XiaMen HongXin Electron-tech GroupLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From XiaMen HongXin Electron-tech GroupLtd's P/S?

Shares in XiaMen HongXin Electron-tech GroupLtd have risen appreciably however, its P/S is still subdued. 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.

A look at XiaMen HongXin Electron-tech GroupLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - XiaMen HongXin Electron-tech GroupLtd has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on XiaMen HongXin Electron-tech GroupLtd, 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.