Despite an already strong run, Tellhow Sci-Tech Co., Ltd. (SHSE:600590) shares have been powering on, with a gain of 32% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Although its price has surged higher, Tellhow Sci-Tech may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Electrical industry in China have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Tellhow Sci-Tech Has Been Performing

Tellhow Sci-Tech 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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Tellhow Sci-Tech's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 40% decrease to the company's top line. As a result, revenue from three years ago have also fallen 38% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 36% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Tellhow Sci-Tech'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.

What We Can Learn From Tellhow Sci-Tech's P/S?

Despite Tellhow Sci-Tech's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Tellhow Sci-Tech's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Tellhow Sci-Tech that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.