The Shenyang Yuanda Intellectual Industry Group Co.,Ltd (SZSE:002689) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that Shenyang Yuanda Intellectual Industry GroupLtd's price-to-sales (or "P/S") ratio of 2.6x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shenyang Yuanda Intellectual Industry GroupLtd's Recent Performance Look Like?

Recent times have been quite advantageous for Shenyang Yuanda Intellectual Industry GroupLtd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Shenyang Yuanda Intellectual Industry GroupLtd would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 63%. The strong recent performance means it was also able to grow revenue by 59% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Shenyang Yuanda Intellectual Industry GroupLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Shenyang Yuanda Intellectual Industry GroupLtd's P/S

Shenyang Yuanda Intellectual Industry GroupLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 Shenyang Yuanda Intellectual Industry GroupLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shenyang Yuanda Intellectual Industry GroupLtd that you should be aware of.

If you're unsure about the strength of Shenyang Yuanda Intellectual Industry GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.