Shenzhen Chuangyitong Technology Co.,Ltd. (SZSE:300991) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shenzhen Chuangyitong TechnologyLtd's P/S ratio of 4.7x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in China is also close to 4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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

With revenue growth that's exceedingly strong of late, Shenzhen Chuangyitong TechnologyLtd has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Shenzhen Chuangyitong 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 Chuangyitong TechnologyLtd's Revenue Growth Trending?

Shenzhen Chuangyitong TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. As a result, it also grew revenue by 18% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this information, we find it interesting that Shenzhen Chuangyitong TechnologyLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

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

Its shares have lifted substantially and now Shenzhen Chuangyitong TechnologyLtd's P/S is back within range of the industry median. 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.

Our examination of Shenzhen Chuangyitong TechnologyLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You always need to take note of risks, for example - Shenzhen Chuangyitong TechnologyLtd has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Chuangyitong TechnologyLtd, 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.