Tianjin Troila Information Technology Co.,Ltd. (SHSE:600225) shares have had a horrible month, losing 64% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 73% loss during that time.

In spite of the heavy fall in price, when almost half of the companies in China's Real Estate industry have price-to-sales ratios (or "P/S") below 2.4x, you may still consider Tianjin Troila Information TechnologyLtd as a stock probably not worth researching with its 4.4x 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 as high as it is.

How Tianjin Troila Information TechnologyLtd Has Been Performing

Tianjin Troila Information TechnologyLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Tianjin Troila Information TechnologyLtd?

In order to justify its P/S ratio, Tianjin Troila Information TechnologyLtd would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 5.8% gain to the company's revenues. Still, lamentably revenue has fallen 9.0% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Tianjin Troila Information TechnologyLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Tianjin Troila Information TechnologyLtd's P/S Mean For Investors?

There's still some elevation in Tianjin Troila Information TechnologyLtd's P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Tianjin Troila Information TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Tianjin Troila Information TechnologyLtd you should know about.

If you're unsure about the strength of Tianjin Troila Information TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.