Lisheng Sports (Shanghai) Co.,Ltd (SZSE:002858) shares have had a horrible month, losing 28% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 2.2% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that Lisheng Sports (Shanghai)Ltd's price-to-sales (or "P/S") ratio of 5.4x right now seems quite "middle-of-the-road" compared to the Entertainment industry in China, where the median P/S ratio is around 6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Lisheng Sports (Shanghai)Ltd Performed Recently?

Lisheng Sports (Shanghai)Ltd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Lisheng Sports (Shanghai)Ltd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

What Are Revenue Growth Metrics Telling Us About The P/S?

Lisheng Sports (Shanghai)Ltd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. The latest three year period has also seen an excellent 37% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 36% shows it's noticeably less attractive.

With this information, we find it interesting that Lisheng Sports (Shanghai)Ltd 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 Lisheng Sports (Shanghai)Ltd's P/S Mean For Investors?

Lisheng Sports (Shanghai)Ltd's plummeting stock price has brought its P/S back to a similar region as the rest of 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 Lisheng Sports (Shanghai)Ltd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Lisheng Sports (Shanghai)Ltd (of which 2 are potentially serious!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.