To the annoyance of some shareholders, Thunder Software Technology Co.,Ltd. (SZSE:300496) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

Although its price has dipped substantially, Thunder Software TechnologyLtd's price-to-sales (or "P/S") ratio of 2.9x might still make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 4.1x and even P/S above 7x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Thunder Software TechnologyLtd's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Thunder Software TechnologyLtd's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Thunder Software TechnologyLtd?

The only time you'd be truly comfortable seeing a P/S as low as Thunder Software TechnologyLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 5.4% decrease to the company's top line. Even so, admirably revenue has lifted 58% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 25% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 20% each year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Thunder Software TechnologyLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The southerly movements of Thunder Software TechnologyLtd's shares means its P/S is now sitting at a pretty low level. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at Thunder Software TechnologyLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you take the next step, you should know about the 4 warning signs for Thunder Software TechnologyLtd that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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