Shenzhen Zhongzhuang Construction Group Co.,Ltd (SZSE:002822) Held Back By Insufficient Growth Even After Shares Climb 31%

Despite an already strong run, Shenzhen Zhongzhuang Construction Group Co.,Ltd (SZSE:002822) shares have been powering on, with a gain of 31% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

In spite of the firm bounce in price, Shenzhen Zhongzhuang Construction GroupLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Construction industry in China have P/S ratios greater than 1.3x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Shenzhen Zhongzhuang Construction GroupLtd

How Has Shenzhen Zhongzhuang Construction GroupLtd Performed Recently?

For example, consider that Shenzhen Zhongzhuang Construction GroupLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Shenzhen Zhongzhuang Construction GroupLtd 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 Shenzhen Zhongzhuang Construction GroupLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shenzhen Zhongzhuang Construction GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 48% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Shenzhen Zhongzhuang Construction GroupLtd's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Shenzhen Zhongzhuang Construction GroupLtd's P/S?

Despite Shenzhen Zhongzhuang Construction GroupLtd's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shenzhen Zhongzhuang Construction GroupLtd 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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shenzhen Zhongzhuang Construction GroupLtd you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Zhongzhuang Construction GroupLtd, 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.