Shenzhen S-king Intelligent Equipment Co., Ltd. (SHSE:688328) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 95%.

Although its price has surged higher, Shenzhen S-king Intelligent Equipment may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.8x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 7.7x and even P/S higher than 14x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shenzhen S-king Intelligent Equipment

What Does Shenzhen S-king Intelligent Equipment's P/S Mean For Shareholders?

For example, consider that Shenzhen S-king Intelligent Equipment's financial performance has been poor lately as its revenue has been in decline. 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.

Is There Any Revenue Growth Forecasted For Shenzhen S-king Intelligent Equipment?

In order to justify its P/S ratio, Shenzhen S-king Intelligent Equipment would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 12% 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 8.8% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 41% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Shenzhen S-king Intelligent Equipment's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Shenzhen S-king Intelligent Equipment's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Shenzhen S-king Intelligent Equipment maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shenzhen S-king Intelligent Equipment you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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