HY Electronic (Cayman) Limited (TWSE:6573) Stock Catapults 26% Though Its Price And Business Still Lag The Industry

HY Electronic (Cayman) Limited (TWSE:6573) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, HY Electronic (Cayman) may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Semiconductor industry in Taiwan have P/S ratios greater than 3.9x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for HY Electronic (Cayman)

How HY Electronic (Cayman) Has Been Performing

For example, consider that HY Electronic (Cayman)'s financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on HY Electronic (Cayman) 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 HY Electronic (Cayman)'s earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as HY Electronic (Cayman)'s is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 46% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that HY Electronic (Cayman)'s P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

HY Electronic (Cayman)'s recent share price jump still sees fails to bring its P/S alongside the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that HY Electronic (Cayman) maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for HY Electronic (Cayman) (of which 1 is a bit unpleasant!) you should know about.

If you're unsure about the strength of HY Electronic (Cayman)'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.