Hangzhou Arcvideo Technology Co., Ltd.'s (SHSE:688039) Share Price Is Still Matching Investor Opinion Despite 28% Slump

Hangzhou Arcvideo Technology Co., Ltd. (SHSE:688039) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

In spite of the heavy fall in price, when almost half of the companies in China's Software industry have price-to-sales ratios (or "P/S") below 5.2x, you may still consider Hangzhou Arcvideo Technology as a stock not worth researching with its 9.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Hangzhou Arcvideo Technology

What Does Hangzhou Arcvideo Technology's P/S Mean For Shareholders?

Recent times haven't been great for Hangzhou Arcvideo Technology as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou Arcvideo Technology.

Is There Enough Revenue Growth Forecasted For Hangzhou Arcvideo Technology?

Hangzhou Arcvideo Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 8.9% decline in revenue over the last three years in total. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 29%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Hangzhou Arcvideo Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Hangzhou Arcvideo Technology's P/S Mean For Investors?

Hangzhou Arcvideo Technology's shares may have suffered, but its P/S remains high. 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.

We've established that Hangzhou Arcvideo Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Hangzhou Arcvideo Technology has 1 warning sign we think you should be aware of.

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.