Anhui Shiny Electronic Technology Company Limited's (SZSE:300956) Shares Climb 177% But Its Business Is Yet to Catch Up

Anhui Shiny Electronic Technology Company Limited (SZSE:300956) shareholders have had their patience rewarded with a 177% share price jump in the last month. The last month tops off a massive increase of 133% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Anhui Shiny Electronic Technology's P/S ratio of 2.9x, since the median price-to-sales (or "P/S") ratio for the Tech industry in China is also close to 2.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Anhui Shiny Electronic Technology

What Does Anhui Shiny Electronic Technology's P/S Mean For Shareholders?

Anhui Shiny Electronic Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Anhui Shiny Electronic Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Anhui Shiny Electronic Technology?

The only time you'd be comfortable seeing a P/S like Anhui Shiny Electronic Technology's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 3.0% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we find it concerning that Anhui Shiny Electronic Technology is trading at a fairly similar P/S compared to the industry. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Anhui Shiny Electronic Technology's P/S?

Anhui Shiny Electronic Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Anhui Shiny Electronic Technology revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Anhui Shiny Electronic Technology that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.