Ganzhou Yihao New Materials Co., Ltd. (SZSE:301176) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

After such a large drop in price, Ganzhou Yihao New Materials may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.6x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.5x 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.

Check out our latest analysis for Ganzhou Yihao New Materials

What Does Ganzhou Yihao New Materials' P/S Mean For Shareholders?

For instance, Ganzhou Yihao New Materials' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Ganzhou Yihao New Materials?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Ganzhou Yihao New Materials' to be considered reasonable.

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 7.4%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 49% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 60% shows it's noticeably less attractive.

With this information, we can see why Ganzhou Yihao New Materials 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.

What We Can Learn From Ganzhou Yihao New Materials' P/S?

Ganzhou Yihao New Materials' recently weak share price has pulled its P/S back below other Electronic companies. 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 Ganzhou Yihao New Materials 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. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Ganzhou Yihao New Materials is showing 1 warning sign in our investment analysis, you should know about.

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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