Not Many Are Piling Into YD Electronic Technology Co.,Ltd. (SZSE:301123) Just Yet

With a price-to-sales (or "P/S") ratio of 2.5x YD Electronic Technology Co.,Ltd. (SZSE:301123) may be sending bullish signals at the moment, given that almost half of all the Electronic companies in China have P/S ratios greater than 3.6x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for YD Electronic TechnologyLtd

How YD Electronic TechnologyLtd Has Been Performing

Recent times haven't been great for YD Electronic TechnologyLtd as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on YD Electronic TechnologyLtd.

How Is YD Electronic TechnologyLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as YD Electronic TechnologyLtd's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. Revenue has also lifted 13% in aggregate from three years ago, partly 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.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 45% over the next year. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that YD Electronic TechnologyLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

A look at YD Electronic TechnologyLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with YD Electronic TechnologyLtd (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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.