Newlink Technology Inc. (HKG:9600) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 83% loss during that time.

In spite of the heavy fall in price, it's still not a stretch to say that Newlink Technology's price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" compared to the IT industry in Hong Kong, where the median P/S ratio is around 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Newlink Technology's Recent Performance Look Like?

For instance, Newlink Technology's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Newlink Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Newlink Technology would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 5.8% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 39% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 14% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Newlink Technology is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Newlink Technology looks to be in line with the rest of the IT 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.

As we've seen, Newlink Technology's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Newlink Technology (1 is significant!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.