The Sichuan Changhong Electric Co.,Ltd. (SHSE:600839) share price has softened a substantial 34% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 81%, which is great even in a bull market.

Even after such a large drop in price, Sichuan Changhong ElectricLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Consumer Durables industry in China have P/S ratios greater than 2.1x and even P/S higher than 5x aren't out of the ordinary. 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 Sichuan Changhong ElectricLtd Has Been Performing

Revenue has risen firmly for Sichuan Changhong ElectricLtd recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Sichuan Changhong ElectricLtd?

In order to justify its P/S ratio, Sichuan Changhong ElectricLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 9.7% gain to the company's revenues. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Sichuan Changhong ElectricLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Sichuan Changhong ElectricLtd's P/S Mean For Investors?

Sichuan Changhong ElectricLtd's recently weak share price has pulled its P/S back below other Consumer Durables 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.

In line with expectations, Sichuan Changhong ElectricLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. 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 experience a reversal of fortunes anytime soon.

You need to take note of risks, for example - Sichuan Changhong ElectricLtd has 3 warning signs (and 1 which can't be ignored) we think you should know about.

If you're unsure about the strength of Sichuan Changhong ElectricLtd'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.