Guangzhou Risong Intelligent Technology Holding Co., Ltd. (SHSE:688090) May Have Run Too Fast Too Soon With Recent 42% Price Plummet

Guangzhou Risong Intelligent Technology Holding Co., Ltd. (SHSE:688090) shares have had a horrible month, losing 42% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 62% in the last year.

Even after such a large drop in price, there still wouldn't be many who think Guangzhou Risong Intelligent Technology Holding's price-to-sales (or "P/S") ratio of 3.4x is worth a mention when the median P/S in China's Machinery industry is similar at about 3.2x. 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.

View our latest analysis for Guangzhou Risong Intelligent Technology Holding

How Has Guangzhou Risong Intelligent Technology Holding Performed Recently?

Revenue has risen firmly for Guangzhou Risong Intelligent Technology Holding recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Guangzhou Risong Intelligent Technology Holding 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 Guangzhou Risong Intelligent Technology Holding will help you shine a light on its historical performance.

How Is Guangzhou Risong Intelligent Technology Holding's Revenue Growth Trending?

Guangzhou Risong Intelligent Technology Holding'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 22% last year. The latest three year period has also seen a 19% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Guangzhou Risong Intelligent Technology Holding is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Guangzhou Risong Intelligent Technology Holding's P/S?

Following Guangzhou Risong Intelligent Technology Holding's share price tumble, its P/S is just clinging on to the industry median P/S. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Guangzhou Risong Intelligent Technology Holding's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Guangzhou Risong Intelligent Technology Holding (2 are a bit concerning) you should be aware of.

If you're unsure about the strength of Guangzhou Risong Intelligent Technology Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.