Shenzhen Kexin Communication Technologies Co.,Ltd's (SZSE:300565) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Shenzhen Kexin Communication Technologies Co.,Ltd (SZSE:300565) 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 47% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Shenzhen Kexin Communication TechnologiesLtd's price-to-sales (or "P/S") ratio of 3.6x is worth a mention when the median P/S in China's Communications industry is similar at about 3.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shenzhen Kexin Communication TechnologiesLtd

What Does Shenzhen Kexin Communication TechnologiesLtd's P/S Mean For Shareholders?

For example, consider that Shenzhen Kexin Communication TechnologiesLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Shenzhen Kexin Communication TechnologiesLtd?

Shenzhen Kexin Communication TechnologiesLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 50% 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 find it worrying that Shenzhen Kexin Communication TechnologiesLtd's P/S exceeds that of its industry peers. 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 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.

The Final Word

Shenzhen Kexin Communication TechnologiesLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Shenzhen Kexin Communication TechnologiesLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. 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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Shenzhen Kexin Communication TechnologiesLtd (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Shenzhen Kexin Communication TechnologiesLtd, 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.