Zhejiang Akcome New Energy Technology Co.,Ltd. (SZSE:002610) shareholders won't be pleased to see that the share price has had a very rough month, dropping 33% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

After such a large drop in price, Zhejiang Akcome New Energy TechnologyLtd's price-to-sales (or "P/S") ratio of 1.3x might make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 5.9x and even P/S above 10x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Zhejiang Akcome New Energy TechnologyLtd Has Been Performing

Zhejiang Akcome New Energy TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. 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 Zhejiang Akcome New Energy TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Zhejiang Akcome New Energy TechnologyLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The latest three year period has also seen an excellent 62% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Zhejiang Akcome New Energy TechnologyLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Zhejiang Akcome New Energy TechnologyLtd's P/S

Zhejiang Akcome New Energy TechnologyLtd's P/S looks about as weak as its stock price lately. 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.

In line with expectations, Zhejiang Akcome New Energy TechnologyLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. 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.

It is also worth noting that we have found 2 warning signs for Zhejiang Akcome New Energy TechnologyLtd (1 doesn't sit too well with us!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.