Risks Still Elevated At These Prices As Xiong'an New Power Technology Co.,Ltd. (SZSE:300152) Shares Dive 28%

Xiong'an New Power Technology Co.,Ltd. (SZSE:300152) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

Although its price has dipped substantially, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.8x, you may still consider Xiong'an New Power TechnologyLtd as a stock to avoid entirely with its 7.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Xiong'an New Power TechnologyLtd

What Does Xiong'an New Power TechnologyLtd's P/S Mean For Shareholders?

Xiong'an New Power TechnologyLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Xiong'an New Power TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Xiong'an New Power TechnologyLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Xiong'an New Power TechnologyLtd's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.9% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 56% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 25% 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 Xiong'an New Power 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 We Can Learn From Xiong'an New Power TechnologyLtd's P/S?

A significant share price dive has done very little to deflate Xiong'an New Power TechnologyLtd's very lofty 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 Xiong'an New Power TechnologyLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Xiong'an New Power TechnologyLtd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.