Suzhou Victory Precision Manufacture Co., Ltd.'s (SZSE:002426) price-to-sales (or "P/S") ratio of 1.7x might 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 3.3x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Suzhou Victory Precision Manufacture's Recent Performance Look Like?

For instance, Suzhou Victory Precision Manufacture's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Suzhou Victory Precision Manufacture will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Suzhou Victory Precision Manufacture?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Suzhou Victory Precision Manufacture's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.6%. The last three years don't look nice either as the company has shrunk revenue by 53% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Suzhou Victory Precision Manufacture's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Suzhou Victory Precision Manufacture's P/S

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.

It's no surprise that Suzhou Victory Precision Manufacture maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Suzhou Victory Precision Manufacture with six simple checks on some of these key factors.

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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