Revenues Working Against Shenzhen Kaizhong Precision Technology Co., Ltd.'s (SZSE:002823) Share Price Following 28% Dive

The Shenzhen Kaizhong Precision Technology Co., Ltd. (SZSE:002823) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 25% in the last year.

Although its price has dipped substantially, Shenzhen Kaizhong Precision Technology's price-to-sales (or "P/S") ratio of 1.3x might still make it look like a buy right now compared to the Electrical industry in China, where around half of the companies have P/S ratios above 2x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Shenzhen Kaizhong Precision Technology

What Does Shenzhen Kaizhong Precision Technology's P/S Mean For Shareholders?

Revenue has risen firmly for Shenzhen Kaizhong Precision Technology recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Shenzhen Kaizhong Precision Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Shenzhen Kaizhong Precision 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 Shenzhen Kaizhong Precision Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Shenzhen Kaizhong Precision Technology's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Shenzhen Kaizhong Precision Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Shenzhen Kaizhong Precision Technology's P/S?

The southerly movements of Shenzhen Kaizhong Precision Technology's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

In line with expectations, Shenzhen Kaizhong Precision Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 4 warning signs for Shenzhen Kaizhong Precision Technology (3 are significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Kaizhong Precision Technology, 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.