Some Hangzhou Landscape Architecture Design Institute Co., Ltd. (SZSE:300649) Shareholders Look For Exit As Shares Take 26% Pounding

To the annoyance of some shareholders, Hangzhou Landscape Architecture Design Institute Co., Ltd. (SZSE:300649) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

In spite of the heavy fall in price, when almost half of the companies in China's Professional Services industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider Hangzhou Landscape Architecture Design Institute as a stock probably not worth researching with its 4.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hangzhou Landscape Architecture Design Institute

How Hangzhou Landscape Architecture Design Institute Has Been Performing

For instance, Hangzhou Landscape Architecture Design Institute'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. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Hangzhou Landscape Architecture Design Institute, 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 High P/S Ratio?

In order to justify its P/S ratio, Hangzhou Landscape Architecture Design Institute would need to produce impressive growth in excess of 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 56%. As a result, revenue from three years ago have also fallen 54% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 94% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Hangzhou Landscape Architecture Design Institute 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. There's a very 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.

What We Can Learn From Hangzhou Landscape Architecture Design Institute's P/S?

There's still some elevation in Hangzhou Landscape Architecture Design Institute's P/S, even if the same can't be said for its share price recently. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Hangzhou Landscape Architecture Design Institute 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.

You need to take note of risks, for example - Hangzhou Landscape Architecture Design Institute has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.