More Unpleasant Surprises Could Be In Store For Anhui Sinonet & Xinlong Science & Technology Co., Ltd.'s (SZSE:002298) Shares After Tumbling 33%

Anhui Sinonet & Xinlong Science & Technology Co., Ltd. (SZSE:002298) shares have had a horrible month, losing 33% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Anhui Sinonet & Xinlong Science & Technology's price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S in China's Electrical industry is similar at about 2.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Anhui Sinonet & Xinlong Science & Technology

How Has Anhui Sinonet & Xinlong Science & Technology Performed Recently?

As an illustration, revenue has deteriorated at Anhui Sinonet & Xinlong Science & Technology over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Anhui Sinonet & Xinlong Science & Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Anhui Sinonet & Xinlong Science & Technology's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Anhui Sinonet & Xinlong Science & Technology's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 44%. As a result, revenue from three years ago have also fallen 37% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's an unpleasant look.

With this in mind, we find it worrying that Anhui Sinonet & Xinlong Science & Technology's P/S exceeds that of its industry peers. 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 on the share price eventually.

What We Can Learn From Anhui Sinonet & Xinlong Science & Technology's P/S?

With its share price dropping off a cliff, the P/S for Anhui Sinonet & Xinlong Science & Technology looks to be in line with the rest of the Electrical industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We find it unexpected that Anhui Sinonet & Xinlong Science & Technology trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 2 warning signs for Anhui Sinonet & Xinlong Science & Technology that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.