Subdued Growth No Barrier To Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) With Shares Advancing 44%

Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shenzhen Chuangyitong TechnologyLtd's P/S ratio of 4.7x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 4x. 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 Shenzhen Chuangyitong TechnologyLtd Has Been Performing

Recent times have been quite advantageous for Shenzhen Chuangyitong TechnologyLtd as its revenue has been rising very briskly. 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 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.

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.

How Is Shenzhen Chuangyitong TechnologyLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Shenzhen Chuangyitong TechnologyLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 32%. Revenue has also lifted 18% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

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

With this in mind, we find it intriguing that Shenzhen Chuangyitong TechnologyLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now Shenzhen Chuangyitong TechnologyLtd's P/S is back within range of the industry median. 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 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you settle on your opinion, we've discovered 3 warning signs for Shenzhen Chuangyitong TechnologyLtd that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Chuangyitong TechnologyLtd, 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.