Risks Still Elevated At These Prices As Harbin Xinguang Optic-Electronics Technology Co.,Ltd. (SHSE:688011) Shares Dive 26%

Harbin Xinguang Optic-Electronics Technology Co.,Ltd. (SHSE:688011) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

Although its price has dipped substantially, you could still be forgiven for thinking Harbin Xinguang Optic-Electronics TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.1x, considering almost half the companies in China's Electronic industry have P/S ratios below 3.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Harbin Xinguang Optic-Electronics TechnologyLtd

What Does Harbin Xinguang Optic-Electronics TechnologyLtd's Recent Performance Look Like?

The recent revenue growth at Harbin Xinguang Optic-Electronics TechnologyLtd would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Harbin Xinguang Optic-Electronics TechnologyLtd will help you shine a light on its historical performance.

How Is Harbin Xinguang Optic-Electronics TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Harbin Xinguang Optic-Electronics TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.9%. Still, lamentably revenue has fallen 9.4% in aggregate from three years ago, which is disappointing. 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 26% shows it's an unpleasant look.

With this in mind, we find it worrying that Harbin Xinguang Optic-Electronics TechnologyLtd'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 Harbin Xinguang Optic-Electronics TechnologyLtd's P/S

A significant share price dive has done very little to deflate Harbin Xinguang Optic-Electronics TechnologyLtd's very lofty P/S. 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 Harbin Xinguang Optic-Electronics TechnologyLtd 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.

Having said that, be aware Harbin Xinguang Optic-Electronics TechnologyLtd is showing 1 warning sign in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.