Tbi Motion Technology Co., Ltd.'s (TWSE:4540) 29% Share Price Surge Not Quite Adding Up

Tbi Motion Technology Co., Ltd. (TWSE:4540) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 48%.

Although its price has surged higher, it's still not a stretch to say that Tbi Motion Technology's price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" compared to the Machinery industry in Taiwan, where the median P/S ratio is around 2.2x. 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 Tbi Motion Technology

What Does Tbi Motion Technology's P/S Mean For Shareholders?

Tbi Motion Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

Tbi Motion Technology's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 25% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 18% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Tbi Motion Technology's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Tbi Motion Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Tbi Motion Technology's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 4 warning signs for Tbi Motion Technology (2 are a bit concerning!) that you should be aware of.

If you're unsure about the strength of Tbi Motion Technology's 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.