Cetc Potevio Science&Technology Co.,Ltd. (SZSE:002544) shareholders would be excited to see that the share price has had a great month, posting a 53% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.2% over the last year.

Although its price has surged higher, Cetc Potevio Science&TechnologyLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.2x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 4.5x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Cetc Potevio Science&TechnologyLtd Has Been Performing

Recent revenue growth for Cetc Potevio Science&TechnologyLtd has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Cetc Potevio Science&TechnologyLtd?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Cetc Potevio Science&TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.7% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 12% over the next year. With the industry predicted to deliver 51% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Cetc Potevio Science&TechnologyLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Cetc Potevio Science&TechnologyLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Cetc Potevio Science&TechnologyLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Cetc Potevio Science&TechnologyLtd.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.