Zhejiang Zone-King Environmental Sci&Tech Co., Ltd.'s (SHSE:688701) 34% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the Zhejiang Zone-King Environmental Sci&Tech Co., Ltd. (SHSE:688701) share price has dived 34% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.

After such a large drop in price, Zhejiang Zone-King Environmental Sci&Tech's price-to-sales (or "P/S") ratio of 1.5x might make it look like a buy right now compared to the Commercial Services industry in China, where around half of the companies have P/S ratios above 2.6x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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

What Does Zhejiang Zone-King Environmental Sci&Tech's Recent Performance Look Like?

Recent times have been quite advantageous for Zhejiang Zone-King Environmental Sci&Tech as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang Zone-King Environmental Sci&Tech will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Zhejiang Zone-King Environmental Sci&Tech's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

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 information, we can see why Zhejiang Zone-King Environmental Sci&Tech is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Zhejiang Zone-King Environmental Sci&Tech's P/S Mean For Investors?

Zhejiang Zone-King Environmental Sci&Tech's recently weak share price has pulled its P/S back below other Commercial Services companies. 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.

In line with expectations, Zhejiang Zone-King Environmental Sci&Tech maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Zhejiang Zone-King Environmental Sci&Tech is showing 4 warning signs in our investment analysis, and 3 of those are potentially serious.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.