Despite an already strong run, Hylink Digital Solutions Co.,Ltd (SHSE:603825) shares have been powering on, with a gain of 25% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 2.8% isn't as impressive.

Although its price has surged higher, Hylink Digital SolutionsLtd's price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Media industry in China, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Hylink Digital SolutionsLtd's Recent Performance Look Like?

For example, consider that Hylink Digital SolutionsLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is Hylink Digital SolutionsLtd's Revenue Growth Trending?

Hylink Digital SolutionsLtd'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.

Retrospectively, the last year delivered a frustrating 58% decrease to the company's top line. As a result, revenue from three years ago have also fallen 74% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 15% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Hylink Digital SolutionsLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Hylink Digital SolutionsLtd's P/S

Even after such a strong price move, Hylink Digital SolutionsLtd's P/S still trails the rest of the industry. 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 Hylink Digital SolutionsLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Hylink Digital SolutionsLtd that you should be aware of.

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

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