Why Investors Shouldn't Be Surprised By Tianjin Jingwei Huikai Optoelectronic Co., Ltd.'s (SZSE:300120) 25% Share Price Plunge

Tianjin Jingwei Huikai Optoelectronic Co., Ltd. (SZSE:300120) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 43%, which is great even in a bull market.

Following the heavy fall in price, Tianjin Jingwei Huikai Optoelectronic may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.8x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 4.3x and even P/S higher than 9x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Tianjin Jingwei Huikai Optoelectronic

What Does Tianjin Jingwei Huikai Optoelectronic's Recent Performance Look Like?

The revenue growth achieved at Tianjin Jingwei Huikai Optoelectronic over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Tianjin Jingwei Huikai Optoelectronic's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Tianjin Jingwei Huikai Optoelectronic's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The solid recent performance means it was also able to grow revenue by 8.2% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Tianjin Jingwei Huikai Optoelectronic's P/S sits below the majority of other companies. 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.

What Does Tianjin Jingwei Huikai Optoelectronic's P/S Mean For Investors?

Having almost fallen off a cliff, Tianjin Jingwei Huikai Optoelectronic's share price has pulled its P/S way down as well. 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.

As we suspected, our examination of Tianjin Jingwei Huikai Optoelectronic revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Tianjin Jingwei Huikai Optoelectronic that you should be aware of.

If these risks are making you reconsider your opinion on Tianjin Jingwei Huikai Optoelectronic, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.