Xiamen Hongxin Electronics Technology Group Inc.'s (SZSE:300657) Shares Leap 26% Yet They're Still Not Telling The Full Story

Xiamen Hongxin Electronics Technology Group Inc. (SZSE:300657) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 92%.

Although its price has surged higher, Xiamen Hongxin Electronics Technology Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.2x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 4.2x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Xiamen Hongxin Electronics Technology Group

What Does Xiamen Hongxin Electronics Technology Group's P/S Mean For Shareholders?

Recent times have been advantageous for Xiamen Hongxin Electronics Technology Group as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Any Revenue Growth Forecasted For Xiamen Hongxin Electronics Technology Group?

The only time you'd be truly comfortable seeing a P/S as low as Xiamen Hongxin Electronics Technology Group's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 78%. The latest three year period has also seen an excellent 80% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 57% over the next year. 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 Electronics Technology Group's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Xiamen Hongxin Electronics Technology Group's P/S

The latest share price surge wasn't enough to lift Xiamen Hongxin Electronics Technology Group's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A look at Xiamen Hongxin Electronics Technology Group'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. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Xiamen Hongxin Electronics Technology Group that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.