Guangdong Shenglu Telecommunication Tech. Co., Ltd. (SZSE:002446) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Guangdong Shenglu Telecommunication Tech's price-to-sales (or "P/S") ratio of 5x is worth a mention when the median P/S in China's Communications industry is similar at about 4.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Guangdong Shenglu Telecommunication Tech Has Been Performing

Guangdong Shenglu Telecommunication Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Some Revenue Growth Forecasted For Guangdong Shenglu Telecommunication Tech?

Guangdong Shenglu Telecommunication Tech'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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.6%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 65% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 51%, which is noticeably less attractive.

With this information, we find it interesting that Guangdong Shenglu Telecommunication Tech is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Guangdong Shenglu Telecommunication Tech's P/S

Guangdong Shenglu Telecommunication Tech's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Guangdong Shenglu Telecommunication Tech currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Guangdong Shenglu Telecommunication Tech with six simple checks on some of these key factors.

If you're unsure about the strength of Guangdong Shenglu Telecommunication Tech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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