Subdued Growth No Barrier To Guangdong Wenke Green Technology Corp.,Ltd. (SZSE:002775) With Shares Advancing 28%

Guangdong Wenke Green Technology Corp.,Ltd. (SZSE:002775) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Guangdong Wenke Green TechnologyLtd's P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in China is also close to 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Guangdong Wenke Green TechnologyLtd

What Does Guangdong Wenke Green TechnologyLtd's Recent Performance Look Like?

For example, consider that Guangdong Wenke Green TechnologyLtd'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 not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangdong Wenke Green TechnologyLtd will help you shine a light on its historical performance.

How Is Guangdong Wenke Green TechnologyLtd's Revenue Growth Trending?

Guangdong Wenke Green TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 28%. As a result, revenue from three years ago have also fallen 68% overall. 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 28% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Guangdong Wenke Green TechnologyLtd's P/S sits in line with the majority of other companies. 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 Key Takeaway

Guangdong Wenke Green TechnologyLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We find it unexpected that Guangdong Wenke Green TechnologyLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You need to take note of risks, for example - Guangdong Wenke Green TechnologyLtd has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.