Shenzhen Neoway Technology Co.,Ltd. (SHSE:688159) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 74% in the last year.

In spite of the heavy fall in price, Shenzhen Neoway TechnologyLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.7x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 3.9x and even P/S higher than 7x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Shenzhen Neoway TechnologyLtd Performed Recently?

Shenzhen Neoway 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 Shenzhen Neoway TechnologyLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Shenzhen Neoway TechnologyLtd's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 51%. The strong recent performance means it was also able to grow revenue by 121% in total over the last three years. 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 50% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Shenzhen Neoway TechnologyLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Shenzhen Neoway TechnologyLtd's P/S?

Shenzhen Neoway TechnologyLtd's P/S has taken a dip along with its share price. 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 Neoway TechnologyLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Shenzhen Neoway TechnologyLtd that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Neoway 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.