Some Confidence Is Lacking In Xinhua Lande Scitech Co., Limited (HKG:8106) As Shares Slide 27%

Unfortunately for some shareholders, the Xinhua Lande Scitech Co., Limited (HKG:8106) share price has dived 27% in the last thirty days, prolonging recent pain. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 317%.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Xinhua Lande Scitech's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Hong Kong is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Xinhua Lande Scitech

What Does Xinhua Lande Scitech's Recent Performance Look Like?

Recent times have been quite advantageous for Xinhua Lande Scitech 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Xinhua Lande Scitech's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Xinhua Lande Scitech's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 63%. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 18% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Xinhua Lande Scitech'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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Xinhua Lande Scitech's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Xinhua Lande Scitech looks to be in line with the rest of the Electronic industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Xinhua Lande Scitech 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 3 warning signs for Xinhua Lande Scitech (1 is significant!) that we have uncovered.

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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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.