The Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) share price has fared very poorly over the last month, falling by a substantial 27%. The recent drop has obliterated the annual return, with the share price now down 9.9% over that longer period.

In spite of the heavy fall in price, there still wouldn't be many who think Shenzhen Chuangyitong TechnologyLtd's price-to-sales (or "P/S") ratio of 3.7x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shenzhen Chuangyitong TechnologyLtd

How Shenzhen Chuangyitong TechnologyLtd Has Been Performing

Revenue has risen firmly for Shenzhen Chuangyitong TechnologyLtd recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Shenzhen Chuangyitong TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Shenzhen Chuangyitong TechnologyLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenzhen Chuangyitong TechnologyLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 7.9% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 60% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Shenzhen Chuangyitong TechnologyLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Shenzhen Chuangyitong TechnologyLtd's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Shenzhen Chuangyitong TechnologyLtd looks to be in line with the rest of the Electronic 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.

We've established that Shenzhen Chuangyitong TechnologyLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It is also worth noting that we have found 2 warning signs for Shenzhen Chuangyitong TechnologyLtd that you need to take into consideration.

If you're unsure about the strength of Shenzhen Chuangyitong 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.