Some Zhonghang Electronic Measuring Instruments Co.,Ltd (SZSE:300114) Shareholders Look For Exit As Shares Take 27% Pounding

The Zhonghang Electronic Measuring Instruments Co.,Ltd (SZSE:300114) share price has softened a substantial 27% 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 48%, which is great even in a bull market.

Even after such a large drop in price, Zhonghang Electronic Measuring InstrumentsLtd may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 24.2x, since almost half of all companies in the Electronic industry in China have P/S ratios under 4.4x and even P/S lower than 2x are not unusual. 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 Zhonghang Electronic Measuring InstrumentsLtd

What Does Zhonghang Electronic Measuring InstrumentsLtd's P/S Mean For Shareholders?

Zhonghang Electronic Measuring InstrumentsLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Zhonghang Electronic Measuring InstrumentsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Zhonghang Electronic Measuring InstrumentsLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Zhonghang Electronic Measuring InstrumentsLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 15% over the next year. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Zhonghang Electronic Measuring InstrumentsLtd's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Zhonghang Electronic Measuring InstrumentsLtd's P/S

Even after such a strong price drop, Zhonghang Electronic Measuring InstrumentsLtd's P/S still exceeds the industry median significantly. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Zhonghang Electronic Measuring InstrumentsLtd, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Having said that, be aware Zhonghang Electronic Measuring InstrumentsLtd is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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.