Pubang Landscape Architecture Co., Ltd (SZSE:002663) Looks Inexpensive After Falling 29% But Perhaps Not Attractive Enough

The Pubang Landscape Architecture Co., Ltd (SZSE:002663) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop has obliterated the annual return, with the share price now down 3.2% over that longer period.

Although its price has dipped substantially, Pubang Landscape Architecture may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.7x, since almost half of all companies in the Professional Services industry in China have P/S ratios greater than 3.6x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Pubang Landscape Architecture

How Pubang Landscape Architecture Has Been Performing

For example, consider that Pubang Landscape Architecture's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Pubang Landscape Architecture would need to produce sluggish growth that's trailing 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 19%. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. 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 25% shows it's an unpleasant look.

In light of this, it's understandable that Pubang Landscape Architecture's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Pubang Landscape Architecture's P/S Mean For Investors?

Pubang Landscape Architecture's recently weak share price has pulled its P/S back below other Professional Services companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that Pubang Landscape Architecture maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Having said that, be aware Pubang Landscape Architecture is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Pubang Landscape Architecture'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.