Ledman Optoelectronic Co., Ltd. (SZSE:300162) Not Doing Enough For Some Investors As Its Shares Slump 29%

Ledman Optoelectronic Co., Ltd. (SZSE:300162) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 7.9% in the last year.

Since its price has dipped substantially, Ledman Optoelectronic may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.2x, since almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.5x and even P/S higher than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Ledman Optoelectronic

What Does Ledman Optoelectronic's Recent Performance Look Like?

Revenue has risen firmly for Ledman Optoelectronic recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Ledman Optoelectronic will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Ledman Optoelectronic's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Ledman Optoelectronic's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. As a result, it also grew revenue by 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 54% shows it's noticeably less attractive.

With this information, we can see why Ledman Optoelectronic is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Ledman Optoelectronic's P/S?

Having almost fallen off a cliff, Ledman Optoelectronic's share price has pulled its P/S way down as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Ledman Optoelectronic revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.