Beijing StarNeto Technology Co., Ltd.'s (SZSE:002829) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Beijing StarNeto Technology Co., Ltd. (SZSE:002829) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

In spite of the heavy fall in price, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.3x, you may still consider Beijing StarNeto Technology as a stock not worth researching with its 5.6x 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.

View our latest analysis for Beijing StarNeto Technology

How Has Beijing StarNeto Technology Performed Recently?

As an illustration, revenue has deteriorated at Beijing StarNeto Technology over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Beijing StarNeto Technology's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Beijing StarNeto Technology'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 39% 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 3.8% 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.

In contrast to the company, the rest of the industry is expected to grow by 29% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Beijing StarNeto Technology's P/S sits above the majority of other companies. 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 Beijing StarNeto Technology's P/S

Beijing StarNeto Technology's shares may have suffered, but its P/S remains high. 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.

We've established that Beijing StarNeto Technology 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. 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 Beijing StarNeto Technology 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.