Xiong'an New Power Technology Co.,Ltd. (SZSE:300152) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

In spite of the heavy fall in price, you could still be forgiven for thinking Xiong'an New Power TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8.2x, considering almost half the companies in China's Machinery industry have P/S ratios below 2.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Xiong'an New Power TechnologyLtd's Recent Performance Look Like?

The recent revenue growth at Xiong'an New Power TechnologyLtd would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Xiong'an New Power TechnologyLtd?

Xiong'an New Power TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.9% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 56% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Xiong'an New Power TechnologyLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Even after such a strong price drop, Xiong'an New Power TechnologyLtd's P/S still exceeds the industry median significantly. 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 Xiong'an New Power TechnologyLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Xiong'an New Power TechnologyLtd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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