The Anhui Shiny Electronic Technology Company Limited (SZSE:300956) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 63% in the last year.

Since its price has dipped substantially, considering around half the companies operating in China's Tech industry have price-to-sales ratios (or "P/S") above 3x, you may consider Anhui Shiny Electronic Technology as an solid investment opportunity with its 2.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Anhui Shiny Electronic Technology Performed Recently?

With revenue growth that's exceedingly strong of late, Anhui Shiny Electronic Technology has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Anhui Shiny Electronic Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Anhui Shiny Electronic Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Anhui Shiny Electronic Technology would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 3.0% drop in revenue in aggregate. 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 19% shows it's an unpleasant look.

With this information, we are not surprised that Anhui Shiny Electronic Technology is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Anhui Shiny Electronic Technology's P/S?

Anhui Shiny Electronic Technology's recently weak share price has pulled its P/S back below other Tech companies. 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.

It's no surprise that Anhui Shiny Electronic Technology 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. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You need to take note of risks, for example - Anhui Shiny Electronic Technology has 3 warning signs (and 2 which are a bit concerning) we think 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com