The Vohringer Home Technology Co.,Ltd. (SHSE:603226) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

In spite of the heavy fall in price, given close to half the companies operating in China's Building industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider Vohringer Home TechnologyLtd as a stock to potentially avoid with its 2.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does Vohringer Home TechnologyLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Vohringer Home TechnologyLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Vohringer Home 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.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 46% in aggregate. 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 24% shows it's an unpleasant look.

With this information, we find it concerning that Vohringer Home TechnologyLtd is trading at a P/S higher than the industry. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Vohringer Home TechnologyLtd's P/S?

Despite the recent share price weakness, Vohringer Home TechnologyLtd's P/S remains higher than most other companies in the industry. 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.

Our examination of Vohringer Home TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Vohringer Home TechnologyLtd has 2 warning signs (and 1 which is concerning) we think you should know about.

If you're unsure about the strength of Vohringer Home 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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