Win Win Precision Technology Co., Ltd. (TWSE:4949) Surges 45% Yet Its Low P/S Is No Reason For Excitement

Win Win Precision Technology Co., Ltd. (TWSE:4949) shareholders would be excited to see that the share price has had a great month, posting a 45% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Although its price has surged higher, Win Win Precision Technology's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a strong buy right now compared to the wider Semiconductor industry in Taiwan, where around half of the companies have P/S ratios above 3.5x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Win Win Precision Technology

What Does Win Win Precision Technology's Recent Performance Look Like?

For instance, Win Win Precision Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Win Win Precision Technology will help you shine a light on its historical performance.

How Is Win Win Precision Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Win Win Precision Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 15,469% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Win Win Precision Technology is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Shares in Win Win Precision Technology have risen appreciably however, its P/S is still subdued. 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.

It's no surprise that Win Win Precision Technology maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Win Win Precision Technology (1 is a bit concerning!) that you should be aware of before investing here.

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.