Anshan Senyuan Road and Bridge Co., Ltd's (SZSE:300210) 26% Share Price Plunge Could Signal Some Risk

Anshan Senyuan Road and Bridge Co., Ltd (SZSE:300210) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 221%.

Even after such a large drop in price, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.8x, you may still consider Anshan Senyuan Road and Bridge as a stock to avoid entirely with its 26.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Anshan Senyuan Road and Bridge

What Does Anshan Senyuan Road and Bridge's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Anshan Senyuan Road and Bridge over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Anshan Senyuan Road and Bridge's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Anshan Senyuan Road and Bridge'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 18%. The last three years don't look nice either as the company has shrunk revenue by 53% 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 25% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Anshan Senyuan Road and Bridge 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 Anshan Senyuan Road and Bridge's P/S Mean For Investors?

Even after such a strong price drop, Anshan Senyuan Road and Bridge'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 Anshan Senyuan Road and Bridge 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Anshan Senyuan Road and Bridge you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.