To the annoyance of some shareholders, Kingbo Strike Limited (HKG:1421) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 50% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Kingbo Strike's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Electrical industry in Hong Kong, where the median P/S ratio is around 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Kingbo Strike Performed Recently?

Kingbo Strike certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Kingbo Strike will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For Kingbo Strike?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kingbo Strike's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 97% gain to the company's top line. Still, revenue has fallen 58% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 21% 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 somewhat alarming that Kingbo Strike's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Kingbo Strike's P/S?

With its share price dropping off a cliff, the P/S for Kingbo Strike looks to be in line with the rest of the Electrical industry. 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 look at Kingbo Strike revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 2 warning signs for Kingbo Strike (1 doesn't sit too well with us!) that you need to take into consideration.

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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