Improved Revenues Required Before Shenzhen Yitoa Intelligent Control Co.,Ltd. (SZSE:300131) Stock's 41% Jump Looks Justified

Simply Wall St · 10/14 22:15

Shenzhen Yitoa Intelligent Control Co.,Ltd. (SZSE:300131) shares have continued their recent momentum with a 41% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Although its price has surged higher, Shenzhen Yitoa Intelligent ControlLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.8x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Shenzhen Yitoa Intelligent ControlLtd

ps-multiple-vs-industry
SZSE:300131 Price to Sales Ratio vs Industry October 14th 2024

What Does Shenzhen Yitoa Intelligent ControlLtd's Recent Performance Look Like?

Shenzhen Yitoa Intelligent ControlLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Yitoa Intelligent ControlLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Shenzhen Yitoa Intelligent ControlLtd?

The only time you'd be truly comfortable seeing a P/S as depressed as Shenzhen Yitoa Intelligent ControlLtd's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Still, lamentably revenue has fallen 36% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this information, we are not surprised that Shenzhen Yitoa Intelligent ControlLtd is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Shenzhen Yitoa Intelligent ControlLtd's P/S?

Even after such a strong price move, Shenzhen Yitoa Intelligent ControlLtd's P/S still trails the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shenzhen Yitoa Intelligent ControlLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Yitoa Intelligent ControlLtd that you should be aware of.

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).