The GuangDong PaiSheng Intelligent Technology Co.,Ltd (SZSE:300176) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

Although its price has dipped substantially, considering around half the companies operating in China's Auto Components industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider GuangDong PaiSheng Intelligent TechnologyLtd as an solid investment opportunity with its 1.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How GuangDong PaiSheng Intelligent TechnologyLtd Has Been Performing

Revenue has risen firmly for GuangDong PaiSheng Intelligent TechnologyLtd recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on GuangDong PaiSheng Intelligent TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For GuangDong PaiSheng Intelligent TechnologyLtd?

GuangDong PaiSheng Intelligent TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. Pleasingly, revenue has also lifted 40% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that GuangDong PaiSheng Intelligent TechnologyLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From GuangDong PaiSheng Intelligent TechnologyLtd's P/S?

The southerly movements of GuangDong PaiSheng Intelligent TechnologyLtd's shares means its P/S is now sitting at a pretty low level. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of GuangDong PaiSheng Intelligent TechnologyLtd 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.

Plus, you should also learn about these 2 warning signs we've spotted with GuangDong PaiSheng Intelligent TechnologyLtd (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of GuangDong PaiSheng Intelligent TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.