Investors Don't See Light At End Of Zhejiang Akcome New Energy Technology Co.,Ltd.'s (SZSE:002610) Tunnel And Push Stock Down 45%

To the annoyance of some shareholders, Zhejiang Akcome New Energy Technology Co.,Ltd. (SZSE:002610) shares are down a considerable 45% 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 86% share price decline.

After such a large drop in price, Zhejiang Akcome New Energy TechnologyLtd may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.7x and even P/S higher than 10x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Zhejiang Akcome New Energy TechnologyLtd

What Does Zhejiang Akcome New Energy TechnologyLtd's P/S Mean For Shareholders?

For example, consider that Zhejiang Akcome New Energy TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. 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. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang Akcome New Energy TechnologyLtd will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, Zhejiang Akcome New Energy TechnologyLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 46% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 36% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Zhejiang Akcome New Energy TechnologyLtd is trading at a P/S lower than the industry. 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.

The Key Takeaway

Having almost fallen off a cliff, Zhejiang Akcome New Energy TechnologyLtd's share price has pulled its P/S way down as well. 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.

As we suspected, our examination of Zhejiang Akcome New Energy TechnologyLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You always need to take note of risks, for example - Zhejiang Akcome New Energy TechnologyLtd has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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