Unfortunately for some shareholders, the Shenzhen Neoway Technology Co.,Ltd. (SHSE:688159) share price has dived 25% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 29% share price drop.

In spite of the heavy fall in price, Shenzhen Neoway TechnologyLtd's price-to-sales (or "P/S") ratio of 1.6x might still make it look like a strong buy right now compared to the wider Communications industry in China, where around half of the companies have P/S ratios above 3.8x and even P/S above 6x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Shenzhen Neoway TechnologyLtd's P/S Mean For Shareholders?

Recent times have been quite advantageous for Shenzhen Neoway TechnologyLtd 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. Those who are bullish on Shenzhen Neoway TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Shenzhen Neoway TechnologyLtd's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 82% gain to the company's top line. Pleasingly, revenue has also lifted 172% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 46% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Shenzhen Neoway TechnologyLtd's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Shenzhen Neoway TechnologyLtd's P/S

Shares in Shenzhen Neoway TechnologyLtd have plummeted and its P/S has followed suit. 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 Neoway TechnologyLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Shenzhen Neoway TechnologyLtd (1 is potentially serious!) that you need to take into consideration.

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.