Unfortunately for some shareholders, the Zhengzhou Tiamaes Technology Co.,Ltd (SZSE:300807) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 6.2% over that longer period.

Although its price has dipped substantially, given close to half the companies operating in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.5x, you may still consider Zhengzhou Tiamaes TechnologyLtd as a stock to potentially avoid with its 5.3x 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 Zhengzhou Tiamaes TechnologyLtd

What Does Zhengzhou Tiamaes TechnologyLtd's Recent Performance Look Like?

For example, consider that Zhengzhou Tiamaes TechnologyLtd's financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is high because investors think the benign revenue growth will improve 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 Zhengzhou Tiamaes TechnologyLtd's Revenue Growth Trending?

Zhengzhou Tiamaes TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 14% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 60% shows it's an unpleasant look.

With this in mind, we find it worrying that Zhengzhou Tiamaes TechnologyLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Final Word

Despite the recent share price weakness, Zhengzhou Tiamaes TechnologyLtd's P/S remains higher than most other companies in the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Zhengzhou Tiamaes TechnologyLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhengzhou Tiamaes TechnologyLtd (1 makes us a bit uncomfortable) you should be aware of.

If you're unsure about the strength of Zhengzhou Tiamaes 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.