More Unpleasant Surprises Could Be In Store For Guangdong Faith Long Crystal Technology Co.,LTD.'s (SZSE:300460) Shares After Tumbling 25%

Guangdong Faith Long Crystal Technology Co.,LTD. (SZSE:300460) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.

Even after such a large drop in price, given close to half the companies operating in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.4x, you may still consider Guangdong Faith Long Crystal TechnologyLTD as a stock to potentially avoid with its 5.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Guangdong Faith Long Crystal TechnologyLTD

How Guangdong Faith Long Crystal TechnologyLTD Has Been Performing

For example, consider that Guangdong Faith Long Crystal TechnologyLTD's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Guangdong Faith Long Crystal TechnologyLTD's earnings, revenue and cash flow.

How Is Guangdong Faith Long Crystal TechnologyLTD's Revenue Growth Trending?

Guangdong Faith Long Crystal TechnologyLTD's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 23% shows it's noticeably less attractive.

With this in mind, we find it worrying that Guangdong Faith Long Crystal TechnologyLTD's P/S exceeds that of its industry peers. 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 Final Word

Despite the recent share price weakness, Guangdong Faith Long Crystal TechnologyLTD's P/S remains higher than most other companies in the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Guangdong Faith Long Crystal TechnologyLTD revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Guangdong Faith Long Crystal TechnologyLTD that you should be aware of.

If you're unsure about the strength of Guangdong Faith Long Crystal TechnologyLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.