Infotmic Co.,Ltd (SZSE:000670) stock price rose 29%, but its business outlook also needs improvement

Despite an already strong run Infotmic Co., Ltd (SZSE:000670) Shares are on the rise, up 29% in the last thirty days. Despite the recent rise, the annual share price return of 8.3% isn’t that impressive.

Even after such a big price jump, InfotmicLtd could still be sending very bullish signals with its price-to-sales ratio (or “P/S”) of 1.6x at the moment, as almost half of all companies in the semiconductor industry in China have P/S- Ratios of more than 6.9x and even P/S of more than 12x are not uncommon. Still, we’d have to dig a little deeper to determine whether there’s a rational basis for the heavily reduced P/S.

Check out our latest analysis for InfotmicLtd

How InfotmicLtd performed

InfotmicLtd has been doing a good job lately and increasing its sales solidly. It could be that many are expecting the respectable sales performance to deteriorate significantly, which has depressed the P/E ratio. If you like the company, you hope it doesn’t, so you might be able to buy shares while the company falls out of favor.

Would you like to get a complete overview of the company’s profits, sales and cash flow? Then ours free A report on InfotmicLtd will help you gain insight into InfotmicLtd’s historical performance.

Do the sales forecasts match the low price-to-performance ratio?

To justify its P/E ratio, InfotmicLtd would have to deliver paltry growth that significantly lags the industry.

If we first look back, we see that the company grew revenue by an impressive 18% last year. Pleasingly, thanks to growth in the last twelve months, sales increased by a total of 44% compared to the previous year. Accordingly, shareholders would have welcomed these medium-term sales growth rates.

A comparison of recent medium-term sales trends with the industry’s one-year growth forecast of 45% shows that it is significantly less attractive.

With this in mind, it’s easy to understand why InfotmicLtd’s P/S lags behind those set by its industry peers. It seems that most investors assume that the recent limited growth rates will continue in the future and are only willing to pay a lower amount for the stock.

The conclusion to the P/S of InfotmicLtd

The recent rise in InfotmicLtd’s share price still means that its price-to-earnings (P/E) ratio falls short of the industry average. It doesn’t make sense to use the price-to-sales ratio alone to determine whether you should sell your stock, but it can be a practical guide to the company’s future prospects.

As we suspected, our research into InfotmicLtd found that the company’s three-year revenue performance contributes to its low P/E ratio, as it falls short of current industry expectations. For now, shareholders accept the low P/E ratio, acknowledging that future earnings are unlikely to hold any pleasant surprises. Unless recent medium-term conditions improve, they will continue to act as a barrier to the share price near these levels.

In addition, you should also find out about it 3 warning signs we’ve spotted with InfotmicLtd (including 1, which is a bit worrying).

If you like strong companies that make profits, then you should check this out free List of interesting companies that trade on a low P/E ratio (but have proven they can grow profits).

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.