Sumavision Technologies Co.,Ltd. (SZSE:300079) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.
Since its price has surged higher, Sumavision TechnologiesLtd's price-to-sales (or "P/S") ratio of 7.6x might make it look like a strong sell right now compared to other companies in the Communications industry in China, where around half of the companies have P/S ratios below 4.5x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
SZSE:300079 Price to Sales Ratio vs Industry March 3rd 2024
How Sumavision TechnologiesLtd Has Been Performing
For example, consider that Sumavision TechnologiesLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sumavision TechnologiesLtd will help you shine a light on its historical performance.
Do Revenue Forecasts Match The High P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as steep as Sumavision TechnologiesLtd's is when the company's growth is on track to outshine the industry decidedly.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.6%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 51% shows it's an unpleasant look.
With this in mind, we find it worrying that Sumavision TechnologiesLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Bottom Line On Sumavision TechnologiesLtd's P/S
Shares in Sumavision TechnologiesLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
Our examination of Sumavision TechnologiesLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Sumavision TechnologiesLtd that you should be aware of.
If these risks are making you reconsider your opinion on Sumavision TechnologiesLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.
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