Kunwu Jiuding Investment Holdings Co., Ltd.'s (SHSE:600053) 25% Share Price Plunge Could Signal Some Risk

Kunwu Jiuding Investment Holdings Co., Ltd. (SHSE:600053) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 2.4% over that longer period.

Although its price has dipped substantially, when almost half of the companies in China's Capital Markets industry have price-to-sales ratios (or "P/S") below 5.5x, you may still consider Kunwu Jiuding Investment Holdings as a stock not worth researching with its 21.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Kunwu Jiuding Investment Holdings

What Does Kunwu Jiuding Investment Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Kunwu Jiuding Investment Holdings over the last year, which is not ideal at all. 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 Kunwu Jiuding Investment Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kunwu Jiuding Investment Holdings' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 35%. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

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.

With this in mind, we find it worrying that Kunwu Jiuding Investment Holdings' P/S exceeds that of its industry peers. 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 Bottom Line On Kunwu Jiuding Investment Holdings' P/S

A significant share price dive has done very little to deflate Kunwu Jiuding Investment Holdings' very lofty P/S. 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 Kunwu Jiuding Investment Holdings 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. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. 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 Kunwu Jiuding Investment Holdings is showing 5 warning signs in our investment analysis, and 2 of those make us uncomfortable.

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.