Gotion High-tech Co.,Ltd.'s (SZSE:002074) price-to-sales (or "P/S") ratio of 1.2x might make it look like a buy right now compared to the Electrical industry in China, where around half of the companies have P/S ratios above 2.5x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for Gotion High-techLtd
How Has Gotion High-techLtd Performed Recently?
Recent times have been advantageous for Gotion High-techLtd as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gotion High-techLtd.Is There Any Revenue Growth Forecasted For Gotion High-techLtd?
In order to justify its P/S ratio, Gotion High-techLtd would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 60% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.
In light of this, it's peculiar that Gotion High-techLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
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.
To us, it seems Gotion High-techLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Gotion High-techLtd you should know about.
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.
