Shenzhen Chuangyitong Technology Co.,Ltd.'s (SZSE:300991) Price Is Out Of Tune With Revenues

There wouldn't be many who think Shenzhen Chuangyitong Technology Co.,Ltd.'s (SZSE:300991) price-to-sales (or "P/S") ratio of 3.7x is worth a mention when the median P/S for the Electronic industry in China is similar at about 3.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Shenzhen Chuangyitong TechnologyLtd

How Has Shenzhen Chuangyitong TechnologyLtd Performed Recently?

The revenue growth achieved at Shenzhen Chuangyitong TechnologyLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic 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.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Revenue has also lifted 7.9% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 60% 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. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

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. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - Shenzhen Chuangyitong TechnologyLtd has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.