Some Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) Shareholders Look For Exit As Shares Take 25% Pounding

The Transportation Telecommunication & Information Development Inc.Ltd.Zhejiang (SZSE:300469) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 50%, which is great even in a bull market.

In spite of the heavy fall in price, Transportation Telecommunication & Information DevelopmentLtd.Zhejiang may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 20x, since almost half of all companies in the IT industry in China have P/S ratios under 4.5x and even P/S lower than 2x are not unusual. 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.

View our latest analysis for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang

How Transportation Telecommunication & Information DevelopmentLtd.Zhejiang Has Been Performing

For example, consider that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's Revenue Growth Trending?

Transportation Telecommunication & Information DevelopmentLtd.Zhejiang'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.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 44% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this in mind, we find it worrying that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Even after such a strong price drop, Transportation Telecommunication & Information DevelopmentLtd.Zhejiang's P/S still exceeds the industry median significantly. 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.

We've established that Transportation Telecommunication & Information DevelopmentLtd.Zhejiang currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 2 warning signs for Transportation Telecommunication & Information DevelopmentLtd.Zhejiang that 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.