Some Confidence Is Lacking In Tanyuan Technology Co.,Ltd. (SHSE:603133) As Shares Slide 37%

To the annoyance of some shareholders, Tanyuan Technology Co.,Ltd. (SHSE:603133) shares are down a considerable 37% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.

In spite of the heavy fall in price, you could still be forgiven for thinking Tanyuan TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.9x, considering almost half the companies in China's Electrical industry have P/S ratios below 2.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Tanyuan TechnologyLtd

How Has Tanyuan TechnologyLtd Performed Recently?

For example, consider that Tanyuan TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Tanyuan TechnologyLtd?

Tanyuan TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. As a result, revenue from three years ago have also fallen 83% overall. 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 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Tanyuan TechnologyLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Tanyuan TechnologyLtd's P/S Mean For Investors?

A significant share price dive has done very little to deflate Tanyuan TechnologyLtd's very lofty 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.

We've established that Tanyuan TechnologyLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Tanyuan TechnologyLtd you should know about.

If these risks are making you reconsider your opinion on Tanyuan TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.