The Guangdong Leadyo IC Testing Co., Ltd. (SHSE:688135) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 25% in that time.

Although its price has dipped substantially, there still wouldn't be many who think Guangdong Leadyo IC Testing's price-to-sales (or "P/S") ratio of 6.5x is worth a mention when the median P/S in China's Semiconductor industry is similar at about 6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Guangdong Leadyo IC Testing

How Has Guangdong Leadyo IC Testing Performed Recently?

The revenue growth achieved at Guangdong Leadyo IC Testing over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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 not quite in favour.

How Is Guangdong Leadyo IC Testing's Revenue Growth Trending?

In order to justify its P/S ratio, Guangdong Leadyo IC Testing would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.6% last year. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Guangdong Leadyo IC Testing's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Guangdong Leadyo IC Testing's P/S

Guangdong Leadyo IC Testing's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Guangdong Leadyo IC Testing revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - Guangdong Leadyo IC Testing has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of Guangdong Leadyo IC Testing'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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