Hollyland (China) Electronics Technology Corporation Limited's (SZSE:002729) Popularity With Investors Under Threat As Stock Sinks 29%

Unfortunately for some shareholders, the Hollyland (China) Electronics Technology Corporation Limited (SZSE:002729) share price has dived 29% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

Although its price has dipped substantially, given around half the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.6x, you may still consider Hollyland (China) Electronics Technology as a stock to avoid entirely with its 6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Hollyland (China) Electronics Technology

What Does Hollyland (China) Electronics Technology's Recent Performance Look Like?

The revenue growth achieved at Hollyland (China) Electronics Technology over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hollyland (China) Electronics Technology's earnings, revenue and cash flow.

How Is Hollyland (China) Electronics Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Hollyland (China) Electronics Technology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 9.3% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 45% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Hollyland (China) Electronics Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Final Word

Even after such a strong price drop, Hollyland (China) Electronics Technology'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.

Our examination of Hollyland (China) Electronics Technology revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Hollyland (China) Electronics Technology that you need to be mindful of.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.