M-Grass Ecology And Environment (Group) Co., Ltd.'s (SZSE:300355) Popularity With Investors Under Threat As Stock Sinks 27%

M-Grass Ecology And Environment (Group) Co., Ltd. (SZSE:300355) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 35% in the last year.

Even after such a large drop in price, given close to half the companies operating in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 3.1x, you may still consider M-Grass Ecology And Environment (Group) as a stock to potentially avoid with its 4.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for M-Grass Ecology And Environment (Group)

How Has M-Grass Ecology And Environment (Group) Performed Recently?

For example, consider that M-Grass Ecology And Environment (Group)'s financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 M-Grass Ecology And Environment (Group)'s earnings, revenue and cash flow.

How Is M-Grass Ecology And Environment (Group)'s Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as M-Grass Ecology And Environment (Group)'s is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.5%. As a result, revenue from three years ago have also fallen 32% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 34% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that M-Grass Ecology And Environment (Group) is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From M-Grass Ecology And Environment (Group)'s P/S?

Despite the recent share price weakness, M-Grass Ecology And Environment (Group)'s P/S remains higher than most other companies in the industry. 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.

Our examination of M-Grass Ecology And Environment (Group) revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for M-Grass Ecology And Environment (Group) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.