EZGO Technologies Ltd.'s (NASDAQ:EZGO) Shares Bounce 55% But Its Business Still Trails The Industry

EZGO Technologies Ltd. (NASDAQ:EZGO) shareholders would be excited to see that the share price has had a great month, posting a 55% gain and recovering from prior weakness. But the last month did very little to improve the 54% share price decline over the last year.

Even after such a large jump in price, EZGO Technologies' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Auto industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 5x 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 limited.

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Check out our latest analysis for EZGO Technologies

What Does EZGO Technologies' P/S Mean For Shareholders?

Revenue has risen firmly for EZGO Technologies recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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 EZGO Technologies' earnings, revenue and cash flow.

How Is EZGO Technologies' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like EZGO Technologies' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 10% shows it's noticeably less attractive.

In light of this, it's understandable that EZGO Technologies' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

The latest share price surge wasn't enough to lift EZGO Technologies' P/S close to the industry median. 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.

As we suspected, our examination of EZGO Technologies revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

We don't want to rain on the parade too much, but we did also find 5 warning signs for EZGO Technologies that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.