ZJBC Information Technology Co., Ltd (SZSE:000889) Not Doing Enough For Some Investors As Its Shares Slump 26%

Unfortunately for some shareholders, the ZJBC Information Technology Co., Ltd (SZSE:000889) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Following the heavy fall in price, ZJBC Information Technology may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the IT industry in China have P/S ratios greater than 3.3x and even P/S higher than 7x aren't out of the ordinary. 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 ZJBC Information Technology

How ZJBC Information Technology Has Been Performing

For instance, ZJBC Information Technology's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is ZJBC Information Technology's Revenue Growth Trending?

In order to justify its P/S ratio, ZJBC Information Technology would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. As a result, revenue from three years ago have also fallen 49% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 37% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that ZJBC Information Technology is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From ZJBC Information Technology's P/S?

Shares in ZJBC Information Technology have plummeted and its P/S has followed suit. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of ZJBC Information Technology revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for ZJBC Information Technology that you need to be mindful 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.