There wouldn't be many who think Weifu High-Technology Group Co., Ltd.'s (SZSE:000581) price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S for the Auto Components industry in China is similar at about 1.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Weifu High-Technology Group's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Weifu High-Technology Group has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Weifu High-Technology Group's Revenue Growth Trending?

In order to justify its P/S ratio, Weifu High-Technology Group would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 8.5% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 3.7% over the next year. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that Weifu High-Technology Group'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. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Weifu High-Technology Group's P/S

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.

Given that Weifu High-Technology Group's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Weifu High-Technology Group you should know about.

If these risks are making you reconsider your opinion on Weifu High-Technology Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.