More Unpleasant Surprises Could Be In Store For Guangdong Faith Long Crystal Technology Co.,LTD.'s (SZSE:300460) Shares After Tumbling 27%

Guangdong Faith Long Crystal Technology Co.,LTD. (SZSE:300460) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 4.1% in the last year.

In spite of the heavy fall in price, Guangdong Faith Long Crystal TechnologyLTD may still be sending sell signals at present with a price-to-sales (or "P/S") ratio of 6x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4x and even P/S lower than 2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Guangdong Faith Long Crystal TechnologyLTD

What Does Guangdong Faith Long Crystal TechnologyLTD's P/S Mean For Shareholders?

Recent times have been quite advantageous for Guangdong Faith Long Crystal TechnologyLTD as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

Is There Enough Revenue Growth Forecasted For Guangdong Faith Long Crystal TechnologyLTD?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Guangdong Faith Long Crystal TechnologyLTD's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Guangdong Faith Long Crystal TechnologyLTD's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Guangdong Faith Long Crystal TechnologyLTD's P/S Mean For Investors?

Guangdong Faith Long Crystal TechnologyLTD's P/S remain high even after its stock plunged. 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 shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Guangdong Faith Long Crystal TechnologyLTD that you need to take into consideration.

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).

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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.