Gohigh Networks Co.,Ltd (SZSE:000851) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Following the heavy fall in price, Gohigh NetworksLtd may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 3.8x and even P/S higher than 7x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Gohigh NetworksLtd Has Been Performing

For example, consider that Gohigh NetworksLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Gohigh NetworksLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Gohigh NetworksLtd?

Gohigh NetworksLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

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 1.9%. As a result, revenue from three years ago have also fallen 10% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 50% shows it's an unpleasant look.

With this information, we are not surprised that Gohigh NetworksLtd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Gohigh NetworksLtd's P/S?

Gohigh NetworksLtd's P/S looks about as weak as its stock price lately. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Gohigh NetworksLtd maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Gohigh NetworksLtd you should know about.

If these risks are making you reconsider your opinion on Gohigh NetworksLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.