Take Care Before Jumping Onto Guangdong Kingshine Electronic Technology Co.,Ltd. (SZSE:300903) Even Though It's 27% Cheaper

To the annoyance of some shareholders, Guangdong Kingshine Electronic Technology Co.,Ltd. (SZSE:300903) shares are down a considerable 27% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

Since its price has dipped substantially, Guangdong Kingshine Electronic TechnologyLtd may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.5x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Guangdong Kingshine Electronic TechnologyLtd

What Does Guangdong Kingshine Electronic TechnologyLtd's Recent Performance Look Like?

The revenue growth achieved at Guangdong Kingshine Electronic TechnologyLtd over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Guangdong Kingshine Electronic TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangdong Kingshine Electronic TechnologyLtd will help you shine a light on its historical performance.

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

Guangdong Kingshine Electronic TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. Pleasingly, revenue has also lifted 93% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 23% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Guangdong Kingshine Electronic TechnologyLtd's P/S sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Guangdong Kingshine Electronic TechnologyLtd's P/S

Shares in Guangdong Kingshine Electronic TechnologyLtd have plummeted and its P/S has followed suit. 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.

The fact that Guangdong Kingshine Electronic TechnologyLtd currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Having said that, be aware Guangdong Kingshine Electronic TechnologyLtd is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.