The Market Doesn't Like What It Sees From Chongqing Construction Engineering Group Corporation Limited's (SHSE:600939) Revenues Yet

Chongqing Construction Engineering Group Corporation Limited's (SHSE:600939) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Construction industry in China, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Chongqing Construction Engineering Group

How Chongqing Construction Engineering Group Has Been Performing

As an illustration, revenue has deteriorated at Chongqing Construction Engineering Group over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Chongqing Construction Engineering Group will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Chongqing Construction Engineering Group's earnings, revenue and cash flow.

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

Chongqing Construction Engineering Group'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. As a result, revenue from three years ago have also fallen 44% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

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

In light of this, it's understandable that Chongqing Construction Engineering Group's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

Our examination of Chongqing Construction Engineering Group confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Having said that, be aware Chongqing Construction Engineering Group is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Chongqing Construction Engineering Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.