Henan Carve Electronics Technology Co., Ltd.'s (SZSE:301182) Shares Climb 27% But Its Business Is Yet to Catch Up

Henan Carve Electronics Technology Co., Ltd. (SZSE:301182) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 172% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Henan Carve Electronics Technology's price-to-sales (or "P/S") ratio of 4.9x is worth a mention when the median P/S in China's Electronic industry is similar at about 4.7x. 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 Henan Carve Electronics Technology

What Does Henan Carve Electronics Technology's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Henan Carve Electronics Technology has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Henan Carve Electronics Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Henan Carve Electronics Technology's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Henan Carve Electronics Technology?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Henan Carve Electronics Technology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. The latest three year period has also seen an excellent 31% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those 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 information, we find it interesting that Henan Carve Electronics Technology is trading at a fairly similar P/S compared to the industry. 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 Does Henan Carve Electronics Technology's P/S Mean For Investors?

Henan Carve Electronics Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Henan Carve Electronics Technology's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. 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 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.

Plus, you should also learn about these 2 warning signs we've spotted with Henan Carve Electronics Technology (including 1 which makes us a bit uncomfortable).

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.