The Tianjin Jieqiang Power Equipment Co.,Ltd. (SZSE:300875) share price has fared very poorly over the last month, falling by a substantial 36%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, it's still not a stretch to say that Tianjin Jieqiang Power EquipmentLtd's price-to-sales (or "P/S") ratio of 6.3x right now seems quite "middle-of-the-road" compared to the Aerospace & Defense industry in China, where the median P/S ratio is around 6.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Tianjin Jieqiang Power EquipmentLtd Performed Recently?

Tianjin Jieqiang Power EquipmentLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Tianjin Jieqiang Power EquipmentLtd would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 141%. The latest three year period has also seen an excellent 37% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 48% shows it's noticeably less attractive.

In light of this, it's curious that Tianjin Jieqiang Power EquipmentLtd's P/S sits in line with the majority of other companies. 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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Following Tianjin Jieqiang Power EquipmentLtd's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

We've established that Tianjin Jieqiang Power EquipmentLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Having said that, be aware Tianjin Jieqiang Power EquipmentLtd is showing 2 warning signs in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.