Shenzhen Refond Optoelectronics Co.,Ltd. (SZSE:300241) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

In spite of the firm bounce in price, Shenzhen Refond OptoelectronicsLtd's price-to-sales (or "P/S") ratio of 2x might still make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 6.5x and even P/S above 12x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

How Shenzhen Refond OptoelectronicsLtd Has Been Performing

For example, consider that Shenzhen Refond OptoelectronicsLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 Refond OptoelectronicsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Shenzhen Refond OptoelectronicsLtd's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.1%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.5% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Shenzhen Refond OptoelectronicsLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Even after such a strong price move, Shenzhen Refond OptoelectronicsLtd's P/S still trails the rest of the 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.

In line with expectations, Shenzhen Refond OptoelectronicsLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Refond OptoelectronicsLtd (1 can't be ignored!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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