Wuxi Xuelang Environmental Technology Co., Ltd. (SZSE:300385) Looks Inexpensive After Falling 29% But Perhaps Not Attractive Enough

The Wuxi Xuelang Environmental Technology Co., Ltd. (SZSE:300385) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 31% in that time.

Since its price has dipped substantially, Wuxi Xuelang Environmental Technology may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.6x and even P/S higher than 5x 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.

Check out our latest analysis for Wuxi Xuelang Environmental Technology

What Does Wuxi Xuelang Environmental Technology's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Wuxi Xuelang Environmental Technology over the last year, which is not ideal at all. 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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of 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 Wuxi Xuelang Environmental Technology's earnings, revenue and cash flow.

How Is Wuxi Xuelang Environmental Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Wuxi Xuelang Environmental Technology's is when the company's growth is on track to lag the industry.

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 23%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 9.3% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Wuxi Xuelang Environmental Technology's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Wuxi Xuelang Environmental Technology's P/S

The southerly movements of Wuxi Xuelang Environmental Technology's shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Wuxi Xuelang Environmental Technology revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 3 warning signs we've spotted with Wuxi Xuelang Environmental Technology (including 2 which can't be ignored).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.