Hangzhou Hopechart IoT Technology Co.,Ltd (SHSE:688288) shares have had a horrible month, losing 25% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

Since its price has dipped substantially, Hangzhou Hopechart IoT TechnologyLtd's price-to-sales (or "P/S") ratio of 3x might make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 6.1x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Has Hangzhou Hopechart IoT TechnologyLtd Performed Recently?

Hangzhou Hopechart IoT TechnologyLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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 Hangzhou Hopechart IoT TechnologyLtd's Revenue Growth Trending?

Hangzhou Hopechart IoT TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 30% shows it's noticeably less attractive.

With this information, we can see why Hangzhou Hopechart IoT TechnologyLtd is trading at a P/S lower than the industry. 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 Hangzhou Hopechart IoT TechnologyLtd's P/S

Having almost fallen off a cliff, Hangzhou Hopechart IoT TechnologyLtd's share price has pulled its P/S way down as well. 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.

As we suspected, our examination of Hangzhou Hopechart IoT TechnologyLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Hangzhou Hopechart IoT TechnologyLtd you should know about.

If these risks are making you reconsider your opinion on Hangzhou Hopechart IoT TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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