Some Confidence Is Lacking In Hainan Development HoldingsNanhai Co., Ltd. (SZSE:002163) As Shares Slide 29%

Hainan Development HoldingsNanhai Co., Ltd. (SZSE:002163) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders would now have taken a real hit with the stock declining 9.1% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Hainan Development HoldingsNanhai's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Construction industry in China is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hainan Development HoldingsNanhai

How Has Hainan Development HoldingsNanhai Performed Recently?

We'd have to say that with no tangible growth over the last year, Hainan Development HoldingsNanhai's revenue has been unimpressive. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. Those who are bullish on Hainan Development HoldingsNanhai will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Hainan Development HoldingsNanhai, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Hainan Development HoldingsNanhai?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

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 somewhat alarming that Hainan Development HoldingsNanhai's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Hainan Development HoldingsNanhai's P/S

Following Hainan Development HoldingsNanhai's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our look at Hainan Development HoldingsNanhai revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 2 warning signs for Hainan Development HoldingsNanhai you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Hainan Development HoldingsNanhai, 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.