CSG Smart Science&Technology Co.,Ltd.'s (SZSE:300222) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

CSG Smart Science&Technology Co.,Ltd. (SZSE:300222) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 33%, which is great even in a bull market.

In spite of the heavy fall in price, there still wouldn't be many who think CSG Smart Science&TechnologyLtd's price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S in China's Electrical industry is similar at about 2.3x. 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 CSG Smart Science&TechnologyLtd

What Does CSG Smart Science&TechnologyLtd's Recent Performance Look Like?

For example, consider that CSG Smart Science&TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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 CSG Smart Science&TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For CSG Smart Science&TechnologyLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like CSG Smart Science&TechnologyLtd'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 7.9%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 25% shows it's noticeably less attractive.

With this in mind, we find it intriguing that CSG Smart Science&TechnologyLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does CSG Smart Science&TechnologyLtd's P/S Mean For Investors?

CSG Smart Science&TechnologyLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our examination of CSG Smart Science&TechnologyLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

We don't want to rain on the parade too much, but we did also find 1 warning sign for CSG Smart Science&TechnologyLtd that you need to be mindful of.

If these risks are making you reconsider your opinion on CSG Smart Science&TechnologyLtd, 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.