Comtec Solar Systems Group Limited (HKG:712) shareholders that were waiting for something to happen have been dealt a blow with a 43% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Since its price has dipped substantially, it would be understandable if you think Comtec Solar Systems Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in Hong Kong's Semiconductor industry have P/S ratios above 1.1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Comtec Solar Systems Group's P/S Mean For Shareholders?

Recent times have been quite advantageous for Comtec Solar Systems Group as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Comtec Solar Systems Group?

Comtec Solar Systems Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Pleasingly, revenue has also lifted 163% in aggregate from three years ago, thanks to the last 12 months of explosive growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it odd that Comtec Solar Systems Group is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Comtec Solar Systems Group's P/S?

Comtec Solar Systems Group's recently weak share price has pulled its P/S back below other Semiconductor companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Comtec Solar Systems Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 6 warning signs for Comtec Solar Systems Group (2 shouldn't be ignored!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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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