Jiangsu Allfavor Intelligent Circuits Technology CO.,Ltd (SZSE:300964) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

Jiangsu Allfavor Intelligent Circuits Technology CO.,Ltd (SZSE:300964) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

Although its price has dipped substantially, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.5x, you may still consider Jiangsu Allfavor Intelligent Circuits TechnologyLtd as a stock probably not worth researching with its 4.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Jiangsu Allfavor Intelligent Circuits TechnologyLtd

What Does Jiangsu Allfavor Intelligent Circuits TechnologyLtd's Recent Performance Look Like?

For instance, Jiangsu Allfavor Intelligent Circuits TechnologyLtd's receding revenue in recent times would have to be some food for thought. 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.

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 Jiangsu Allfavor Intelligent Circuits TechnologyLtd's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should outperform the industry for P/S ratios like Jiangsu Allfavor Intelligent Circuits TechnologyLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that Jiangsu Allfavor Intelligent Circuits TechnologyLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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

Jiangsu Allfavor Intelligent Circuits 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 Jiangsu Allfavor Intelligent Circuits 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 observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. 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.

Plus, you should also learn about these 3 warning signs we've spotted with Jiangsu Allfavor Intelligent Circuits TechnologyLtd (including 2 which make us uncomfortable).

If you're unsure about the strength of Jiangsu Allfavor Intelligent Circuits 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.