Shenzhen Kexin Communication Technologies Co.,Ltd (SZSE:300565) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Although its price has surged higher, there still wouldn't be many who think Shenzhen Kexin Communication TechnologiesLtd's price-to-sales (or "P/S") ratio of 4.6x is worth a mention when the median P/S in China's Communications industry is similar at about 4.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shenzhen Kexin Communication TechnologiesLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Shenzhen Kexin Communication TechnologiesLtd over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Shenzhen Kexin Communication TechnologiesLtd?

Shenzhen Kexin Communication TechnologiesLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. As a result, revenue from three years ago have also fallen 8.5% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 51% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Shenzhen Kexin Communication TechnologiesLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Shenzhen Kexin Communication TechnologiesLtd's P/S?

Shenzhen Kexin Communication TechnologiesLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at Shenzhen Kexin Communication TechnologiesLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Shenzhen Kexin Communication TechnologiesLtd is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.