Shenzhen Minglida Precision Technology Co., Ltd.'s (SZSE:301268) 27% Dip In Price Shows Sentiment Is Matching Revenues

Shenzhen Minglida Precision Technology Co., Ltd. (SZSE:301268) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 46% share price drop.

Following the heavy fall in price, Shenzhen Minglida Precision Technology's price-to-sales (or "P/S") ratio of 2.2x might make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 3x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Shenzhen Minglida Precision Technology

What Does Shenzhen Minglida Precision Technology's Recent Performance Look Like?

For instance, Shenzhen Minglida Precision Technology's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Minglida Precision Technology's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Shenzhen Minglida Precision Technology?

Shenzhen Minglida Precision Technology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. Even so, admirably revenue has lifted 68% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Shenzhen Minglida Precision Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Shenzhen Minglida Precision Technology's P/S Mean For Investors?

Shenzhen Minglida Precision Technology's P/S has taken a dip along with its share price. 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.

In line with expectations, Shenzhen Minglida Precision Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shenzhen Minglida Precision Technology with six simple checks on some of these key factors.

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.