Shinry Technologies Co., Ltd. (SZSE:300745) shares have had a horrible month, losing 28% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

In spite of the heavy fall in price, it's still not a stretch to say that Shinry Technologies' price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Auto Components industry in China, where the median P/S ratio is around 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shinry Technologies' P/S Mean For Shareholders?

Shinry Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

How Is Shinry Technologies' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. Even so, admirably revenue has lifted 185% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 223% over the next year. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Shinry Technologies' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Shinry Technologies' 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.

Despite enticing revenue growth figures that outpace the industry, Shinry Technologies' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shinry Technologies (of which 1 is a bit concerning!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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