Some Ningbo Xianfeng New Material Co.,Ltd (SZSE:300163) Shareholders Look For Exit As Shares Take 34% Pounding

Unfortunately for some shareholders, the Ningbo Xianfeng New Material Co.,Ltd (SZSE:300163) share price has dived 34% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.

In spite of the heavy fall in price, when almost half of the companies in China's Luxury industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Ningbo Xianfeng New MaterialLtd as a stock probably not worth researching with its 3.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Ningbo Xianfeng New MaterialLtd

How Has Ningbo Xianfeng New MaterialLtd Performed Recently?

For instance, Ningbo Xianfeng New MaterialLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. 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 Ningbo Xianfeng New MaterialLtd's earnings, revenue and cash flow.

How Is Ningbo Xianfeng New MaterialLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Ningbo Xianfeng New MaterialLtd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. As a result, revenue from three years ago have also fallen 23% 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 18% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Ningbo Xianfeng New MaterialLtd's P/S sits above the majority of other companies. 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.

The Key Takeaway

Ningbo Xianfeng New MaterialLtd's P/S remain high even after its stock plunged. 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 Ningbo Xianfeng New MaterialLtd 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.

Having said that, be aware Ningbo Xianfeng New MaterialLtd is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Ningbo Xianfeng New MaterialLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.