Unfortunately for some shareholders, the Shenzhen Etmade Automatic Equipment Co., Ltd. (SZSE:300812) share price has dived 30% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 12% share price drop.

Although its price has dipped substantially, Shenzhen Etmade Automatic Equipment may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.4x, since almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.9x and even P/S higher than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Shenzhen Etmade Automatic Equipment's Recent Performance Look Like?

Shenzhen Etmade Automatic Equipment has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Shenzhen Etmade Automatic Equipment will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Shenzhen Etmade Automatic Equipment?

Shenzhen Etmade Automatic Equipment's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.2% last year. The latest three year period has also seen an excellent 53% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 34% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Shenzhen Etmade Automatic Equipment's P/S sits below the majority of other companies. 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.

The Final Word

Shenzhen Etmade Automatic Equipment's recently weak share price has pulled its P/S back below other Semiconductor companies. 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.

As we suspected, our examination of Shenzhen Etmade Automatic Equipment revealed its three-year revenue trends are contributing to its low P/S, given they look worse than 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.

Before you take the next step, you should know about the 4 warning signs for Shenzhen Etmade Automatic Equipment (3 are potentially serious!) that we have uncovered.

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.