Revenues Tell The Story For Fortune Electric Co., Ltd. (TWSE:1519) As Its Stock Soars 27%

Despite an already strong run, Fortune Electric Co., Ltd. (TWSE:1519) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days were the cherry on top of the stock's 481% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, when almost half of the companies in Taiwan's Electrical industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Fortune Electric as a stock not worth researching with its 16x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Fortune Electric

What Does Fortune Electric's P/S Mean For Shareholders?

Recent times have been advantageous for Fortune Electric as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Fortune Electric?

Fortune Electric's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 95% last year. The strong recent performance means it was also able to grow revenue by 83% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 33% as estimated by the three analysts watching the company. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.

With this information, we can see why Fortune Electric is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Fortune Electric's P/S

Shares in Fortune Electric have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 look into Fortune Electric shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Fortune Electric is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com