To the annoyance of some shareholders, Baosheng Science and Technology Innovation Co.,Ltd. (SHSE:600973) shares are down a considerable 28% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

Although its price has dipped substantially, Baosheng Science and Technology InnovationLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Electrical industry in China have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Baosheng Science and Technology InnovationLtd's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Baosheng Science and Technology InnovationLtd has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

Baosheng Science and Technology InnovationLtd'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.4% last year. Revenue has also lifted 27% 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 two analysts covering the company suggest revenue should grow by 3.4% over the next year. Meanwhile, the rest of the industry is forecast to expand by 27%, which is noticeably more attractive.

With this in consideration, its clear as to why Baosheng Science and Technology InnovationLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Baosheng Science and Technology InnovationLtd's P/S has taken a dip along with its share price. 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 expected, our analysis of Baosheng Science and Technology InnovationLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Baosheng Science and Technology InnovationLtd you should know about.

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.