To the annoyance of some shareholders, Guangdong Fenghua Advanced Technology (Holding) Co., Ltd. (SZSE:000636) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

Even after such a large drop in price, it's still not a stretch to say that Guangdong Fenghua Advanced Technology (Holding)'s price-to-sales (or "P/S") ratio of 2.8x right now seems quite "middle-of-the-road" compared to the Electronic industry in China, where the median P/S ratio is around 3.4x. 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.

How Has Guangdong Fenghua Advanced Technology (Holding) Performed Recently?

With revenue growth that's superior to most other companies of late, Guangdong Fenghua Advanced Technology (Holding) has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

How Is Guangdong Fenghua Advanced Technology (Holding)'s Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Guangdong Fenghua Advanced Technology (Holding)'s is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.4% last year. Revenue has also lifted 9.7% 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 actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 26% over the next year. That's shaping up to be materially lower than the 60% growth forecast for the broader industry.

In light of this, it's curious that Guangdong Fenghua Advanced Technology (Holding)'s P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Guangdong Fenghua Advanced Technology (Holding)'s P/S

With its share price dropping off a cliff, the P/S for Guangdong Fenghua Advanced Technology (Holding) looks to be in line with the rest of the Electronic industry. 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.

When you consider that Guangdong Fenghua Advanced Technology (Holding)'s revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about these 3 warning signs we've spotted with Guangdong Fenghua Advanced Technology (Holding).

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.