What Renrenle Commercial Group Co.,Ltd.'s (SZSE:002336) 29% Share Price Gain Is Not Telling You

Renrenle Commercial Group Co.,Ltd. (SZSE:002336) shareholders have had their patience rewarded with a 29% share price jump in the last month. But the last month did very little to improve the 71% share price decline over the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Renrenle Commercial GroupLtd's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Consumer Retailing industry in China is also close to 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Renrenle Commercial GroupLtd

How Has Renrenle Commercial GroupLtd Performed Recently?

For instance, Renrenle Commercial GroupLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Renrenle Commercial GroupLtd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Renrenle Commercial GroupLtd's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 41%. As a result, revenue from three years ago have also fallen 66% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

With this information, we find it concerning that Renrenle Commercial GroupLtd is trading at a fairly similar P/S compared to the industry. 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 on the share price eventually.

The Bottom Line On Renrenle Commercial GroupLtd's P/S

Its shares have lifted substantially and now Renrenle Commercial GroupLtd's P/S is back within range of the industry median. 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.

The fact that Renrenle Commercial GroupLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Renrenle Commercial GroupLtd that you should be aware of.

If these risks are making you reconsider your opinion on Renrenle Commercial GroupLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.