Shenzhen Genvict Technologies Co., Ltd. (SZSE:002869) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Shenzhen Genvict Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 5.7x, considering almost half the companies in China's Electronic industry have P/S ratios below 3.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

How Shenzhen Genvict Technologies Has Been Performing

Revenue has risen firmly for Shenzhen Genvict Technologies recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Shenzhen Genvict Technologies' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Shenzhen Genvict Technologies' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 82% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 25% shows it's an unpleasant look.

With this information, we find it concerning that Shenzhen Genvict Technologies is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

Shenzhen Genvict Technologies shares have taken a big step in a northerly direction, but its P/S is elevated as a result. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Shenzhen Genvict Technologies revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Before you take the next step, you should know about the 2 warning signs for Shenzhen Genvict Technologies (1 doesn't sit too well with us!) that we have uncovered.

If you're unsure about the strength of Shenzhen Genvict Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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