Shanghai Trendzone Holdings Group Co.,Ltd (SHSE:603030) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

Shanghai Trendzone Holdings Group Co.,Ltd (SHSE:603030) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 12% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Shanghai Trendzone Holdings GroupLtd's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in China's Professional Services industry is similar at about 2.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Shanghai Trendzone Holdings GroupLtd

How Has Shanghai Trendzone Holdings GroupLtd Performed Recently?

For instance, Shanghai Trendzone Holdings GroupLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shanghai Trendzone Holdings GroupLtd's to be considered reasonable.

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 48%. This means it has also seen a slide in revenue over the longer-term as revenue is down 81% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 87% shows it's an unpleasant look.

With this in mind, we find it worrying that Shanghai Trendzone Holdings GroupLtd's P/S exceeds that of its industry peers. 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 Shanghai Trendzone Holdings GroupLtd's P/S

With its share price dropping off a cliff, the P/S for Shanghai Trendzone Holdings GroupLtd looks to be in line with the rest of the Professional Services industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Shanghai Trendzone Holdings GroupLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Shanghai Trendzone Holdings GroupLtd (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

If you're unsure about the strength of Shanghai Trendzone Holdings GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.