Why Investors Shouldn't Be Surprised By Nanjing TDH Technology Co.,Ltd.'s (SZSE:301378) 25% Share Price Plunge

Nanjing TDH Technology Co.,Ltd. (SZSE:301378) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

In spite of the heavy fall in price, Nanjing TDH TechnologyLtd's price-to-sales (or "P/S") ratio of 4.9x might still make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 6.2x and even P/S above 11x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Nanjing TDH TechnologyLtd

How Has Nanjing TDH TechnologyLtd Performed Recently?

Nanjing TDH TechnologyLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Nanjing TDH TechnologyLtd 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 Nanjing TDH TechnologyLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Nanjing TDH TechnologyLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Nanjing TDH TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.3% last year. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Nanjing TDH TechnologyLtd is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

The southerly movements of Nanjing TDH TechnologyLtd's shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

In line with expectations, Nanjing TDH TechnologyLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Nanjing TDH TechnologyLtd (4 don't sit too well with us!) that you should be aware of before investing here.

If you're unsure about the strength of Nanjing TDH TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.