Despite an already strong run, UTime Limited (NASDAQ:WTO) shares have been powering on, with a gain of 33% in the last thirty days. But the last month did very little to improve the 64% share price decline over the last year.
Although its price has surged higher, UTime's price-to-sales (or "P/S") ratio of 0.3x might still 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 1.7x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
NasdaqCM:WTO Price to Sales Ratio vs Industry May 14th 2024
How Has UTime Performed Recently?
For instance, UTime's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming 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 UTime will help you shine a light on its historical performance.
Do Revenue Forecasts Match The Low P/S Ratio?
UTime's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
In contrast to the company, the rest of the industry is expected to grow by 5.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this information, we are not surprised that UTime is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
What Does UTime's P/S Mean For Investors?
The latest share price surge wasn't enough to lift UTime's P/S close to the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
It's no surprise that UTime maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
We don't want to rain on the parade too much, but we did also find 4 warning signs for UTime that you need to be mindful 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).
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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.