Ningbo Bird Co.,Ltd. (SHSE:600130) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. The recent drop has obliterated the annual return, with the share price now down 3.9% over that longer period.

Although its price has dipped substantially, when almost half of the companies in China's Tech industry have price-to-sales ratios (or "P/S") below 3.8x, you may still consider Ningbo BirdLtd as a stock not worth researching with its 10.5x 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 so lofty.

What Does Ningbo BirdLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Ningbo BirdLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Ningbo BirdLtd's Revenue Growth Trending?

Ningbo BirdLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. The last three years don't look nice either as the company has shrunk revenue by 64% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we find it concerning that Ningbo BirdLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

A significant share price dive has done very little to deflate Ningbo BirdLtd's very lofty P/S. 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.

Our examination of Ningbo BirdLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Ningbo BirdLtd (1 is significant) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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