The Market Doesn't Like What It Sees From WPG (Shanghai) Smart Water Public Co.,Ltd.'s (SHSE:603956) Revenues Yet As Shares Tumble 38%

The WPG (Shanghai) Smart Water Public Co.,Ltd. (SHSE:603956) share price has softened a substantial 38% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders would now have taken a real hit with the stock declining 3.3% in the last year.

Following the heavy fall in price, WPG (Shanghai) Smart Water PublicLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.6x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.4x and even P/S higher than 6x 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.

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Check out our latest analysis for WPG (Shanghai) Smart Water PublicLtd

How WPG (Shanghai) Smart Water PublicLtd Has Been Performing

Revenue has risen at a steady rate over the last year for WPG (Shanghai) Smart Water PublicLtd, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on WPG (Shanghai) Smart Water PublicLtd will help you shine a light on its historical performance.

How Is WPG (Shanghai) Smart Water PublicLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as WPG (Shanghai) Smart Water PublicLtd's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.7%. The latest three year period has also seen a 15% overall rise in revenue, aided somewhat by its short-term performance. 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 22% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why WPG (Shanghai) Smart Water PublicLtd's P/S falls short of the mark set by its industry peers. 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 Bottom Line On WPG (Shanghai) Smart Water PublicLtd's P/S

WPG (Shanghai) Smart Water PublicLtd's recently weak share price has pulled its P/S back below other Machinery companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of WPG (Shanghai) Smart Water PublicLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for WPG (Shanghai) Smart Water PublicLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on WPG (Shanghai) Smart Water PublicLtd, 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.