To the annoyance of some shareholders, Shenzhen Bingchuan Network Co.,Ltd. (SZSE:300533) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.7% over the last twelve months.

Following the heavy fall in price, Shenzhen Bingchuan NetworkLtd's price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the wider Entertainment industry in China, where around half of the companies have P/S ratios above 5.7x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Has Shenzhen Bingchuan NetworkLtd Performed Recently?

Recent times have been quite advantageous for Shenzhen Bingchuan NetworkLtd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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 out of favour.

How Is Shenzhen Bingchuan NetworkLtd's Revenue Growth Trending?

Shenzhen Bingchuan NetworkLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 102% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 35% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Shenzhen Bingchuan NetworkLtd's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Shenzhen Bingchuan NetworkLtd's P/S looks about as weak as its stock price lately. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Shenzhen Bingchuan NetworkLtd revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Shenzhen Bingchuan NetworkLtd 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.