SGSG Science&Technology Co., Ltd. Zhuhai (SZSE:300561) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

SGSG Science&Technology Co., Ltd. Zhuhai (SZSE:300561) 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 33% share price drop.

Even after such a large drop in price, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.4x, you may still consider SGSG Science&Technology Zhuhai as a stock not worth researching with its 17.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for SGSG Science&Technology Zhuhai

How SGSG Science&Technology Zhuhai Has Been Performing

For example, consider that SGSG Science&Technology Zhuhai's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SGSG Science&Technology Zhuhai will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For SGSG Science&Technology Zhuhai?

The only time you'd be truly comfortable seeing a P/S as steep as SGSG Science&Technology Zhuhai's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.4%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that SGSG Science&Technology Zhuhai'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.

What Does SGSG Science&Technology Zhuhai's P/S Mean For Investors?

SGSG Science&Technology Zhuhai's shares may have suffered, but its P/S remains high. 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.

We've established that SGSG Science&Technology Zhuhai currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 1 warning sign for SGSG Science&Technology Zhuhai that you need to be mindful of.

If you're unsure about the strength of SGSG Science&Technology Zhuhai'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.