The Jiangsu Daybright Intelligent Electric Co.,LTD. (SZSE:300670) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 30% in that time.

In spite of the heavy fall in price, you could still be forgiven for thinking Jiangsu Daybright Intelligent ElectricLTD is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.1x, considering almost half the companies in China's Electrical industry have P/S ratios below 2.1x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Jiangsu Daybright Intelligent ElectricLTD

What Does Jiangsu Daybright Intelligent ElectricLTD's P/S Mean For Shareholders?

Jiangsu Daybright Intelligent ElectricLTD has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Jiangsu Daybright Intelligent ElectricLTD's Revenue Growth Trending?

In order to justify its P/S ratio, Jiangsu Daybright Intelligent ElectricLTD would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 9.0% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 29% 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 Jiangsu Daybright Intelligent ElectricLTD'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 very 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 Bottom Line On Jiangsu Daybright Intelligent ElectricLTD's P/S

Despite the recent share price weakness, Jiangsu Daybright Intelligent ElectricLTD's P/S remains higher than most other companies in the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Jiangsu Daybright Intelligent ElectricLTD currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangsu Daybright Intelligent ElectricLTD that you should be aware of.

If you're unsure about the strength of Jiangsu Daybright Intelligent ElectricLTD'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.