Optimistic Investors Push Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) Shares Up 25% But Growth Is Lacking

Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) shareholders have had their patience rewarded with a 25% share price jump in the last month. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, there still wouldn't be many who think Shenzhen Chuangyitong TechnologyLtd's price-to-sales (or "P/S") ratio of 4.2x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Shenzhen Chuangyitong TechnologyLtd

What Does Shenzhen Chuangyitong TechnologyLtd's P/S Mean For Shareholders?

Shenzhen Chuangyitong TechnologyLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Chuangyitong TechnologyLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Shenzhen Chuangyitong TechnologyLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenzhen Chuangyitong TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. As a result, it also grew revenue by 22% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

In light of this, it's curious that Shenzhen Chuangyitong TechnologyLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Shenzhen Chuangyitong TechnologyLtd's P/S?

Shenzhen Chuangyitong TechnologyLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of Shenzhen Chuangyitong TechnologyLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Shenzhen Chuangyitong TechnologyLtd, and understanding them should be part of your investment process.

If you're unsure about the strength of Shenzhen Chuangyitong TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.