Wuhan Xingtu Xinke Electronics Co.,Ltd. (SHSE:688081) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 13% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Wuhan Xingtu Xinke ElectronicsLtd's price-to-sales (or "P/S") ratio of 8.5x is worth a mention when the median P/S in China's Aerospace & Defense industry is similar at about 7.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Wuhan Xingtu Xinke ElectronicsLtd

What Does Wuhan Xingtu Xinke ElectronicsLtd's P/S Mean For Shareholders?

The revenue growth achieved at Wuhan Xingtu Xinke ElectronicsLtd over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Wuhan Xingtu Xinke ElectronicsLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Wuhan Xingtu Xinke ElectronicsLtd's Revenue Growth Trending?

Wuhan Xingtu Xinke ElectronicsLtd'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 managed to grow revenues by a handy 13% last year. Still, lamentably revenue has fallen 25% in aggregate from three years ago, which is disappointing. 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 48% shows it's an unpleasant look.

With this in mind, we find it worrying that Wuhan Xingtu Xinke ElectronicsLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Following Wuhan Xingtu Xinke ElectronicsLtd's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

The fact that Wuhan Xingtu Xinke ElectronicsLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 2 warning signs for Wuhan Xingtu Xinke ElectronicsLtd you should be aware of.

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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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.