Elegant Home-Tech Co., Ltd.'s (SHSE:603221) Popularity With Investors Under Threat As Stock Sinks 29%

Elegant Home-Tech Co., Ltd. (SHSE:603221) shares have had a horrible month, losing 29% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 24% in the last year.

Even after such a large drop in price, it's still not a stretch to say that Elegant Home-Tech's price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Building industry in China, where the median P/S ratio is around 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Elegant Home-Tech

How Elegant Home-Tech Has Been Performing

With revenue growth that's exceedingly strong of late, Elegant Home-Tech has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Elegant Home-Tech's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 47% last year. As a result, it also grew revenue by 9.1% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Elegant Home-Tech is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Following Elegant Home-Tech's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

We've established that Elegant Home-Tech's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Having said that, be aware Elegant Home-Tech is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

If you're unsure about the strength of Elegant Home-Tech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.