Enjoyor Technology Co., Ltd. (SZSE:300020) shareholders that were waiting for something to happen have been dealt a blow with a 57% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.

Since its price has dipped substantially, Enjoyor Technology may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the IT industry in China have P/S ratios greater than 3.7x and even P/S higher than 7x are not unusual. 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 Enjoyor Technology's P/S Mean For Shareholders?

Enjoyor Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is Enjoyor Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Enjoyor Technology's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. The last three years don't look nice either as the company has shrunk revenue by 51% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 120% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 45%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Enjoyor Technology's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Enjoyor Technology's P/S

Enjoyor Technology's recently weak share price has pulled its P/S back below other IT companies. 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.

A look at Enjoyor Technology's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Enjoyor Technology you should be aware of, and 1 of them is concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.