Chengbang Eco-Environment Co.,Ltd. (SHSE:603316) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

Chengbang Eco-Environment Co.,Ltd. (SHSE:603316) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 38% share price drop.

In spite of the heavy fall in price, given around half the companies in China's Construction industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Chengbang Eco-EnvironmentLtd as a stock to avoid entirely with its 4.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Chengbang Eco-EnvironmentLtd

What Does Chengbang Eco-EnvironmentLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Chengbang Eco-EnvironmentLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Chengbang Eco-EnvironmentLtd's earnings, revenue and cash flow.

How Is Chengbang Eco-EnvironmentLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Chengbang Eco-EnvironmentLtd's is when the company's growth is on track to outshine the industry decidedly.

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 52%. The last three years don't look nice either as the company has shrunk revenue by 81% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Chengbang Eco-EnvironmentLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Chengbang Eco-EnvironmentLtd's P/S Mean For Investors?

Even after such a strong price drop, Chengbang Eco-EnvironmentLtd's P/S still exceeds the industry median significantly. 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 Chengbang Eco-EnvironmentLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Chengbang Eco-EnvironmentLtd.

If these risks are making you reconsider your opinion on Chengbang Eco-EnvironmentLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.