Unfortunately for some shareholders, the Tianjin Guoan Mengguli New Materials Science & Technology Co., Ltd. (SZSE:301487) share price has dived 33% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

In spite of the heavy fall in price, when almost half of the companies in China's Electrical industry have price-to-sales ratios (or "P/S") below 1.8x, you may still consider Tianjin Guoan Mengguli New Materials Science & Technology as a stock probably not worth researching with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does Tianjin Guoan Mengguli New Materials Science & Technology's P/S Mean For Shareholders?

For instance, Tianjin Guoan Mengguli New Materials Science & Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Tianjin Guoan Mengguli New Materials Science & Technology?

The only time you'd be truly comfortable seeing a P/S as high as Tianjin Guoan Mengguli New Materials Science & Technology's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 24% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Tianjin Guoan Mengguli New Materials Science & Technology is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Tianjin Guoan Mengguli New Materials Science & Technology's P/S

Despite the recent share price weakness, Tianjin Guoan Mengguli New Materials Science & Technology's P/S remains higher than most other companies in the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Tianjin Guoan Mengguli New Materials Science & Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

You need to take note of risks, for example - Tianjin Guoan Mengguli New Materials Science & Technology has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

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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