Market Might Still Lack Some Conviction On Viomi Technology Co., Ltd (NASDAQ:VIOT) Even After 32% Share Price Boost

Despite an already strong run, Viomi Technology Co., Ltd (NASDAQ:VIOT) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 57%.

Although its price has surged higher, it's still not a stretch to say that Viomi Technology's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in the United States, where the median P/S ratio is around 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Viomi Technology

How Has Viomi Technology Performed Recently?

While the industry has experienced revenue growth lately, Viomi Technology's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 Viomi Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Viomi Technology?

The only time you'd be comfortable seeing a P/S like Viomi Technology's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 23% 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 65% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 47% over the next year. With the industry only predicted to deliver 5.7%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Viomi Technology is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Viomi Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Looking at Viomi Technology's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Viomi Technology (1 is potentially serious) you should be aware of.

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.