Suzhou Harmontronics Automation Technology Co., Ltd (SHSE:688022) 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. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 64% share price drop in the last twelve months.

Although its price has surged higher, Suzhou Harmontronics Automation Technology's price-to-sales (or "P/S") ratio of 2x might still make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 2.8x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Suzhou Harmontronics Automation Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Suzhou Harmontronics Automation Technology has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Suzhou Harmontronics Automation Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow revenue by 127% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 56% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 28%, which is noticeably less attractive.

In light of this, it's peculiar that Suzhou Harmontronics Automation Technology'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.

What Does Suzhou Harmontronics Automation Technology's P/S Mean For Investors?

Despite Suzhou Harmontronics Automation Technology's share price climbing recently, its P/S still lags most other companies. 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.

Suzhou Harmontronics Automation Technology's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant 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 1 warning sign for Suzhou Harmontronics Automation Technology 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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