Shenzhen EXC-LED Technology Co.Ltd (SZSE:300889) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 16% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Shenzhen EXC-LED TechnologyLtd's P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Electrical industry in China is also close to 2.1x. 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.

See our latest analysis for Shenzhen EXC-LED TechnologyLtd

What Does Shenzhen EXC-LED TechnologyLtd's P/S Mean For Shareholders?

The revenue growth achieved at Shenzhen EXC-LED TechnologyLtd 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.

Is There Some Revenue Growth Forecasted For Shenzhen EXC-LED TechnologyLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenzhen EXC-LED TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 29% shows it's noticeably less attractive.

In light of this, it's curious that Shenzhen EXC-LED TechnologyLtd'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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Shenzhen EXC-LED TechnologyLtd's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Shenzhen EXC-LED TechnologyLtd 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.

We've established that Shenzhen EXC-LED TechnologyLtd'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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you settle on your opinion, we've discovered 3 warning signs for Shenzhen EXC-LED TechnologyLtd (1 can't be ignored!) that you should be aware of.

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.