Why Investors Shouldn't Be Surprised By Henan Carve Electronics Technology Co., Ltd.'s (SZSE:301182) 25% Share Price Plunge

The Henan Carve Electronics Technology Co., Ltd. (SZSE:301182) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.

Following the heavy fall in price, Henan Carve Electronics Technology may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.4x, considering almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.4x and even P/S higher than 7x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Henan Carve Electronics Technology

What Does Henan Carve Electronics Technology's Recent Performance Look Like?

The revenue growth achieved at Henan Carve Electronics Technology over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

How Is Henan Carve Electronics Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Henan Carve Electronics Technology would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 8.3% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

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 information, we can see why Henan Carve Electronics Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

The southerly movements of Henan Carve Electronics Technology's shares means its P/S is now sitting at a pretty low level. 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.

In line with expectations, Henan Carve Electronics Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Henan Carve Electronics Technology that we have uncovered.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.