The Guangdong Topstrong Living Innovation and Integration Co., Ltd. (SZSE:300749) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 16% share price drop.

Although its price has dipped substantially, Guangdong Topstrong Living Innovation and Integration's price-to-sales (or "P/S") ratio of 1.2x might still make it look like a buy right now compared to the Consumer Durables industry in China, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Guangdong Topstrong Living Innovation and Integration's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Guangdong Topstrong Living Innovation and Integration over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Guangdong Topstrong Living Innovation and Integration?

In order to justify its P/S ratio, Guangdong Topstrong Living Innovation and Integration would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 30% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 12% 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 Guangdong Topstrong Living Innovation and Integration 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

Guangdong Topstrong Living Innovation and Integration's recently weak share price has pulled its P/S back below other Consumer Durables companies. 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.

In line with expectations, Guangdong Topstrong Living Innovation and Integration maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you settle on your opinion, we've discovered 3 warning signs for Guangdong Topstrong Living Innovation and Integration (1 is concerning!) that you should be aware of.

If you're unsure about the strength of Guangdong Topstrong Living Innovation and Integration'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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