Shenzhen Liantronics Co.,Ltd (SZSE:300269) Not Doing Enough For Some Investors As Its Shares Slump 30%

To the annoyance of some shareholders, Shenzhen Liantronics Co.,Ltd (SZSE:300269) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 5.1% in the last year.

Even after such a large drop in price, Shenzhen LiantronicsLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.4x and even P/S higher than 7x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Shenzhen LiantronicsLtd

How Has Shenzhen LiantronicsLtd Performed Recently?

For example, consider that Shenzhen LiantronicsLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Shenzhen LiantronicsLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Shenzhen LiantronicsLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Shenzhen LiantronicsLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 14% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Shenzhen LiantronicsLtd's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Shenzhen LiantronicsLtd's P/S Mean For Investors?

Shenzhen LiantronicsLtd's P/S has taken a dip along with its share price. 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.

As we suspected, our examination of Shenzhen LiantronicsLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Shenzhen LiantronicsLtd (of which 1 doesn't sit too well with us!) you should know about.

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

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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.