Jiangsu Lettall Electronic Co.,Ltd (SHSE:603629) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 41% in the last year.

Even after such a large drop in price, Jiangsu Lettall ElectronicLtd's price-to-sales (or "P/S") ratio of 2.2x might still make it look like a buy right now compared to the Electronic industry in China, where around half of the companies have P/S ratios above 3.2x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Jiangsu Lettall ElectronicLtd's Recent Performance Look Like?

Revenue has risen firmly for Jiangsu Lettall ElectronicLtd recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

In order to justify its P/S ratio, Jiangsu Lettall ElectronicLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Pleasingly, revenue has also lifted 30% in aggregate from three years ago, thanks to the last 12 months of growth. 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 60% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Jiangsu Lettall ElectronicLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Jiangsu Lettall ElectronicLtd's recently weak share price has pulled its P/S back below other Electronic companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Jiangsu Lettall ElectronicLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. 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.

It is also worth noting that we have found 5 warning signs for Jiangsu Lettall ElectronicLtd (2 are a bit unpleasant!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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