Risks Still Elevated At These Prices As Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) Shares Dive 34%

Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) shares have had a horrible month, losing 34% 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, it's still not a stretch to say that Hebei Sailhero Environmental Protection High-techLtd's price-to-sales (or "P/S") ratio of 2.1x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Hebei Sailhero Environmental Protection High-techLtd

How Has Hebei Sailhero Environmental Protection High-techLtd Performed Recently?

For instance, Hebei Sailhero Environmental Protection High-techLtd's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Hebei Sailhero Environmental Protection High-techLtd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Hebei Sailhero Environmental Protection High-techLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hebei Sailhero Environmental Protection High-techLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 27% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 24% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Hebei Sailhero Environmental Protection High-techLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a 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.

The Bottom Line On Hebei Sailhero Environmental Protection High-techLtd's P/S

With its share price dropping off a cliff, the P/S for Hebei Sailhero Environmental Protection High-techLtd looks to be in line with the rest of the Machinery industry. 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.

The fact that Hebei Sailhero Environmental Protection High-techLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 2 warning signs for Hebei Sailhero Environmental Protection High-techLtd (1 is a bit concerning!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Hebei Sailhero Environmental Protection High-techLtd, 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.