Little Excitement Around Shenzhen Longsys Electronics Co., Ltd.'s (SZSE:301308) Revenues

With a price-to-sales (or "P/S") ratio of 2.1x Shenzhen Longsys Electronics Co., Ltd. (SZSE:301308) may be sending bullish signals at the moment, given that almost half of all the Tech companies in China have P/S ratios greater than 3.4x and even P/S higher than 8x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shenzhen Longsys Electronics

How Shenzhen Longsys Electronics Has Been Performing

Shenzhen Longsys Electronics certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 103% last year. The strong recent performance means it was also able to grow revenue by 72% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 14% over the next year. That's shaping up to be materially lower than the 18% growth forecast for the broader industry.

In light of this, it's understandable that Shenzhen Longsys Electronics' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Shenzhen Longsys Electronics' P/S Mean For Investors?

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.

We've established that Shenzhen Longsys Electronics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Shenzhen Longsys Electronics (of which 2 are a bit unpleasant!) you should know about.

If you're unsure about the strength of Shenzhen Longsys Electronics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.