Some Wuhan Nusun Landscape Co., Ltd. (SZSE:300536) Shareholders Look For Exit As Shares Take 25% Pounding

Wuhan Nusun Landscape Co., Ltd. (SZSE:300536) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.

In spite of the heavy fall in price, given around half the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 2.9x, you may still consider Wuhan Nusun Landscape as a stock to avoid entirely with its 16.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Wuhan Nusun Landscape

What Does Wuhan Nusun Landscape's P/S Mean For Shareholders?

For instance, Wuhan Nusun Landscape's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Wuhan Nusun Landscape's earnings, revenue and cash flow.

How Is Wuhan Nusun Landscape's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Wuhan Nusun Landscape's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 39% decrease to the company's top line. As a result, revenue from three years ago have also fallen 72% 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 in mind, we find it worrying that Wuhan Nusun Landscape'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. 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 Wuhan Nusun Landscape's P/S?

Even after such a strong price drop, Wuhan Nusun Landscape's P/S still exceeds the industry median significantly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Wuhan Nusun Landscape currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Wuhan Nusun Landscape you should be aware 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.

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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.