Shenzhen Tianyuan DIC Information Technology Co., Ltd. (SZSE:300047) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

In spite of the heavy fall in price, Shenzhen Tianyuan DIC Information Technology's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 5x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Shenzhen Tianyuan DIC Information Technology

How Has Shenzhen Tianyuan DIC Information Technology Performed Recently?

Shenzhen Tianyuan DIC Information Technology has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you 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.

Is There Any Revenue Growth Forecasted For Shenzhen Tianyuan DIC Information Technology?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Shenzhen Tianyuan DIC Information Technology's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Shenzhen Tianyuan DIC Information Technology's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Shenzhen Tianyuan DIC Information Technology's P/S Mean For Investors?

Shares in Shenzhen Tianyuan DIC Information Technology have plummeted and its P/S has followed suit. 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.

In line with expectations, Shenzhen Tianyuan DIC Information Technology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 7 warning signs for Shenzhen Tianyuan DIC Information Technology (5 make us uncomfortable!) that you need to take into consideration.

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.