The Market Doesn't Like What It Sees From Sansheng Intellectual Education Technology CO.,LTD.'s (SZSE:300282) Revenues Yet As Shares Tumble 33%

Unfortunately for some shareholders, the Sansheng Intellectual Education Technology CO.,LTD. (SZSE:300282) share price has dived 33% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

Since its price has dipped substantially, Sansheng Intellectual Education TechnologyLTD's price-to-sales (or "P/S") ratio of 2.5x might make it look like a buy right now compared to the Electronic industry in China, where around half of the companies have P/S ratios above 3.6x and even P/S above 7x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Sansheng Intellectual Education TechnologyLTD

How Sansheng Intellectual Education TechnologyLTD Has Been Performing

As an illustration, revenue has deteriorated at Sansheng Intellectual Education TechnologyLTD over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

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

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

In order to justify its P/S ratio, Sansheng Intellectual Education TechnologyLTD would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.9%. As a result, revenue from three years ago have also fallen 39% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 60% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Sansheng Intellectual Education TechnologyLTD is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Sansheng Intellectual Education TechnologyLTD's P/S

Sansheng Intellectual Education TechnologyLTD's recently weak share price has pulled its P/S back below other Electronic companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Sansheng Intellectual Education TechnologyLTD maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Sansheng Intellectual Education TechnologyLTD (at least 3 which are a bit unpleasant), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.