Optimistic Investors Push Sunshine Global Circuits Co.,Ltd. (SZSE:300739) Shares Up 38% But Growth Is Lacking

Sunshine Global Circuits Co.,Ltd. (SZSE:300739) shares have continued their recent momentum with a 38% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 26%.

In spite of the firm bounce in price, it's still not a stretch to say that Sunshine Global CircuitsLtd's price-to-sales (or "P/S") ratio of 3.7x right now seems quite "middle-of-the-road" compared to the Electronic industry in China, where the median P/S ratio is around 4.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Sunshine Global CircuitsLtd

What Does Sunshine Global CircuitsLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Sunshine Global CircuitsLtd over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sunshine Global CircuitsLtd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Sunshine Global CircuitsLtd?

In order to justify its P/S ratio, Sunshine Global CircuitsLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 5.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 3.1% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 27% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Sunshine Global CircuitsLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Sunshine Global CircuitsLtd's P/S?

Its shares have lifted substantially and now Sunshine Global CircuitsLtd's P/S is back within range of 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.

The fact that Sunshine Global CircuitsLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 6 warning signs for Sunshine Global CircuitsLtd you should be aware of, and 2 of them don't sit too well with us.

If these risks are making you reconsider your opinion on Sunshine Global CircuitsLtd, 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.