Guangdong Anjubao Digital Technology Co., Ltd. (SZSE:300155) Shares May Have Slumped 35% But Getting In Cheap Is Still Unlikely

Guangdong Anjubao Digital Technology Co., Ltd. (SZSE:300155) shareholders won't be pleased to see that the share price has had a very rough month, dropping 35% 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 21% share price drop.

In spite of the heavy fall in price, you could still be forgiven for thinking Guangdong Anjubao Digital Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.7x, considering almost half the companies in China's Consumer Durables industry have P/S ratios below 2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Guangdong Anjubao Digital Technology

What Does Guangdong Anjubao Digital Technology's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Guangdong Anjubao Digital Technology over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangdong Anjubao Digital Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. As a result, revenue from three years ago have also fallen 74% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.

With this information, we find it concerning that Guangdong Anjubao Digital Technology is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Does Guangdong Anjubao Digital Technology's P/S Mean For Investors?

Guangdong Anjubao Digital Technology's shares may have suffered, but its P/S remains high. 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 Guangdong Anjubao Digital Technology 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. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Plus, you should also learn about these 2 warning signs we've spotted with Guangdong Anjubao Digital Technology.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.