Some Shenzhen Sunwin Intelligent Co., Ltd. (SZSE:300044) Shareholders Look For Exit As Shares Take 26% Pounding

The Shenzhen Sunwin Intelligent Co., Ltd. (SZSE:300044) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Although its price has dipped substantially, given around half the companies in China's IT industry have price-to-sales ratios (or "P/S") below 3.6x, you may still consider Shenzhen Sunwin Intelligent as a stock to avoid entirely with its 7x 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.

See our latest analysis for Shenzhen Sunwin Intelligent

What Does Shenzhen Sunwin Intelligent's Recent Performance Look Like?

Shenzhen Sunwin Intelligent has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Shenzhen Sunwin Intelligent's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Shenzhen Sunwin Intelligent's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 68% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 43% shows it's an unpleasant look.

With this in mind, we find it worrying that Shenzhen Sunwin Intelligent's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Shenzhen Sunwin Intelligent's P/S

Shenzhen Sunwin Intelligent's shares may have suffered, but its P/S remains high. 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.

Our examination of Shenzhen Sunwin Intelligent revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Sunwin Intelligent that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.