Fewer Investors Than Expected Jumping On UTime Limited (NASDAQ:UTME)
UTime Limited's (NASDAQ:UTME) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Electronic industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for UTime
What Does UTime's P/S Mean For Shareholders?
With revenue growth that's exceedingly strong of late, UTime has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on UTime will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on UTime will help you shine a light on its historical performance.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, UTime would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered an exceptional 79% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 54% 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.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.2% shows it's noticeably more attractive.
With this information, we find it odd that UTime is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Bottom Line On UTime's P/S
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 UTime revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
You always need to take note of risks, for example - UTime has 2 warning signs we think you should be aware of.
If these risks are making you reconsider your opinion on UTime, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
