Why Investors Shouldn't Be Surprised By Meisheng Cultural & Creative Corp, Ltd.'s (SZSE:002699) 36% Share Price Plunge

Unfortunately for some shareholders, the Meisheng Cultural & Creative Corp, Ltd. (SZSE:002699) share price has dived 36% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 81% share price decline.

Following the heavy fall in price, given about half the companies operating in China's Luxury industry have price-to-sales ratios (or "P/S") above 1.6x, you may consider Meisheng Cultural & Creative Corp as an attractive investment with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Meisheng Cultural & Creative Corp

What Does Meisheng Cultural & Creative Corp's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Meisheng Cultural & Creative Corp over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 Meisheng Cultural & Creative Corp, 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?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Meisheng Cultural & Creative Corp's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the industry, which is predicted to deliver 18% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Meisheng Cultural & Creative Corp's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Meisheng Cultural & Creative Corp's P/S Mean For Investors?

The southerly movements of Meisheng Cultural & Creative Corp's shares means its P/S is now sitting at a pretty low level. 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.

Our examination of Meisheng Cultural & Creative Corp confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Meisheng Cultural & Creative Corp is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

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.