Erayak Power Solution Group Inc. (NASDAQ:RAYA) Stock Rockets 80% But Many Are Still Ignoring The Company

Erayak Power Solution Group Inc. (NASDAQ:RAYA) shareholders have had their patience rewarded with a 80% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 93%.

In spite of the firm bounce in price, Erayak Power Solution Group's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Electrical industry in the United States, where around half of the companies have P/S ratios above 1.8x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Erayak Power Solution Group

What Does Erayak Power Solution Group's P/S Mean For Shareholders?

For instance, Erayak Power Solution Group'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.

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 Erayak Power Solution Group's earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Erayak Power Solution Group would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.3%. Even so, admirably revenue has lifted 43% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Erayak Power Solution Group's P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Erayak Power Solution Group's P/S?

Despite Erayak Power Solution Group's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Erayak Power Solution Group revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

Plus, you should also learn about these 3 warning signs we've spotted with Erayak Power Solution Group (including 2 which are concerning).

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).

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

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.