GuangZhou Wahlap Technology Corporation Limited (SZSE:301011) shares have had a horrible month, losing 31% 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 36% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that GuangZhou Wahlap Technology's price-to-sales (or "P/S") ratio of 3.2x right now seems quite "middle-of-the-road" compared to the Leisure industry in China, where the median P/S ratio is around 3.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for GuangZhou Wahlap Technology

How Has GuangZhou Wahlap Technology Performed Recently?

Revenue has risen at a steady rate over the last year for GuangZhou Wahlap Technology, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to 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.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, GuangZhou Wahlap Technology would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.0%. Pleasingly, revenue has also lifted 73% 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 23% shows it's noticeably less attractive.

With this in mind, we find it intriguing that GuangZhou Wahlap Technology's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From GuangZhou Wahlap Technology's P/S?

Following GuangZhou Wahlap Technology's share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that GuangZhou Wahlap Technology's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. 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 there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you take the next step, you should know about the 2 warning signs for GuangZhou Wahlap Technology (1 is a bit concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.