Positive Sentiment Still Eludes Shenzhen Xinyichang Technology Co., Ltd. (SHSE:688383) Following 25% Share Price Slump

To the annoyance of some shareholders, Shenzhen Xinyichang Technology Co., Ltd. (SHSE:688383) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that Shenzhen Xinyichang Technology's price-to-sales (or "P/S") ratio of 5.5x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in China, where the median P/S ratio is around 5.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shenzhen Xinyichang Technology

How Shenzhen Xinyichang Technology Has Been Performing

While the industry has experienced revenue growth lately, Shenzhen Xinyichang Technology's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Shenzhen Xinyichang Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenzhen Xinyichang Technology'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 12%. Even so, admirably revenue has lifted 48% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 57% as estimated by the three analysts watching the company. With the industry only predicted to deliver 34%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Shenzhen Xinyichang Technology is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Shenzhen Xinyichang Technology's P/S

Following Shenzhen Xinyichang Technology's share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Shenzhen Xinyichang Technology's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Xinyichang Technology (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Xinyichang 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.