Ruijie Networks Co., Ltd. (SZSE:301165) Shares Fly 29% But Investors Aren't Buying For Growth

Despite an already strong run, Ruijie Networks Co., Ltd. (SZSE:301165) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 139% in the last year.

Although its price has surged higher, Ruijie Networks may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 4x, considering almost half of all companies in the Communications industry in China have P/S ratios greater than 5.7x and even P/S higher than 10x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Ruijie Networks

How Has Ruijie Networks Performed Recently?

With revenue growth that's inferior to most other companies of late, Ruijie Networks has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Ruijie Networks' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Ruijie Networks?

Ruijie Networks' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 30% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 33%, which is noticeably more attractive.

With this in consideration, its clear as to why Ruijie Networks' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Ruijie Networks' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Ruijie Networks' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Ruijie Networks (2 are a bit unpleasant!) that you should be aware of.

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.