Ledman Optoelectronic Co., Ltd. (SZSE:300162) shares have had a horrible month, losing 27% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 15% in that time.

Since its price has dipped substantially, Ledman Optoelectronic's price-to-sales (or "P/S") ratio of 2.4x might make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 6.1x and even P/S above 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Ledman Optoelectronic

What Does Ledman Optoelectronic's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Ledman Optoelectronic over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

How Is Ledman Optoelectronic's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Ledman Optoelectronic's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 36% shows it's noticeably less attractive.

With this information, we can see why Ledman Optoelectronic is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Ledman Optoelectronic's P/S?

Shares in Ledman Optoelectronic have plummeted and its P/S has followed suit. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Ledman Optoelectronic revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ledman Optoelectronic that you should be aware of.

If these risks are making you reconsider your opinion on Ledman Optoelectronic, explore our interactive list of high quality stocks to get an idea of what else is out there.

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