Some Confidence Is Lacking In Anshan Senyuan Road and Bridge Co., Ltd (SZSE:300210) As Shares Slide 25%

The Anshan Senyuan Road and Bridge Co., Ltd (SZSE:300210) share price has fared very poorly over the last month, falling by a substantial 25%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 214%.

In spite of the heavy fall in price, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.5x, you may still consider Anshan Senyuan Road and Bridge as a stock to avoid entirely with its 23.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Anshan Senyuan Road and Bridge

How Has Anshan Senyuan Road and Bridge Performed Recently?

For example, consider that Anshan Senyuan Road and Bridge's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Anshan Senyuan Road and Bridge's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Anshan Senyuan Road and Bridge's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. The last three years don't look nice either as the company has shrunk revenue by 47% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 24% 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 alarming that Anshan Senyuan Road and Bridge's P/S sits above 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 heavily on the share price eventually.

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. 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.

We've established that Anshan Senyuan Road and Bridge currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 2 warning signs for Anshan Senyuan Road and Bridge that you should be aware of.

If these risks are making you reconsider your opinion on Anshan Senyuan Road and Bridge, 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.