To the annoyance of some shareholders, Guangdong Shenglu Telecommunication Tech. Co., Ltd. (SZSE:002446) shares are down a considerable 32% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

Even after such a large drop in price, it's still not a stretch to say that Guangdong Shenglu Telecommunication Tech's price-to-sales (or "P/S") ratio of 4x right now seems quite "middle-of-the-road" compared to the Communications industry in China, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Guangdong Shenglu Telecommunication Tech's P/S Mean For Shareholders?

Guangdong Shenglu Telecommunication Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Guangdong Shenglu Telecommunication Tech's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 4.6% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 14% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 65% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 44%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Guangdong Shenglu Telecommunication Tech's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Guangdong Shenglu Telecommunication Tech's P/S?

Guangdong Shenglu Telecommunication Tech's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Guangdong Shenglu Telecommunication Tech currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Guangdong Shenglu Telecommunication Tech with six simple checks on some of these key factors.

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.