Some Zhejiang Zone-King Environmental Sci&Tech Co., Ltd. (SHSE:688701) Shareholders Look For Exit As Shares Take 25% Pounding

Zhejiang Zone-King Environmental Sci&Tech Co., Ltd. (SHSE:688701) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Zhejiang Zone-King Environmental Sci&Tech's P/S ratio of 2.6x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in China is also close to 3.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Zhejiang Zone-King Environmental Sci&Tech

How Has Zhejiang Zone-King Environmental Sci&Tech Performed Recently?

For example, consider that Zhejiang Zone-King Environmental Sci&Tech's financial performance has been poor lately as its revenue has been in decline. 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 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 Zhejiang Zone-King Environmental Sci&Tech's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Zhejiang Zone-King Environmental Sci&Tech?

In order to justify its P/S ratio, Zhejiang Zone-King Environmental Sci&Tech would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 34% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 34% shows it's an unpleasant look.

With this in mind, we find it worrying that Zhejiang Zone-King Environmental Sci&Tech's P/S exceeds that of its industry peers. 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 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 Zhejiang Zone-King Environmental Sci&Tech's P/S Mean For Investors?

Following Zhejiang Zone-King Environmental Sci&Tech's share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Zhejiang Zone-King Environmental Sci&Tech 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Zhejiang Zone-King Environmental Sci&Tech you should be aware of, and 1 of them shouldn't be ignored.

If these risks are making you reconsider your opinion on Zhejiang Zone-King Environmental Sci&Tech, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.