Rayitek Hi-Tech Film Company Ltd., Shenzhen (SHSE:688323) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

In spite of the heavy fall in price, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.3x, you may still consider Rayitek Hi-Tech Film Company Shenzhen as a stock not worth researching with its 10x 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 so lofty.

See our latest analysis for Rayitek Hi-Tech Film Company Shenzhen

How Rayitek Hi-Tech Film Company Shenzhen Has Been Performing

Rayitek Hi-Tech Film Company Shenzhen 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 market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Rayitek Hi-Tech Film Company Shenzhen's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Rayitek Hi-Tech Film Company Shenzhen's is when the company's growth is on track to outshine the industry decidedly.

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 4.8%. As a result, revenue from three years ago have also fallen 18% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 81% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 27% growth forecast for the broader industry.

With this information, we can see why Rayitek Hi-Tech Film Company Shenzhen is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Rayitek Hi-Tech Film Company Shenzhen's P/S Mean For Investors?

A significant share price dive has done very little to deflate Rayitek Hi-Tech Film Company Shenzhen's very lofty P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Rayitek Hi-Tech Film Company Shenzhen's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Rayitek Hi-Tech Film Company Shenzhen (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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.