Benign Growth For Kingenta Ecological Engineering Group Co., Ltd. (SZSE:002470) Underpins Stock's 27% Plummet

The Kingenta Ecological Engineering Group Co., Ltd. (SZSE:002470) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Indeed, the recent drop has reduced its annual gain to a relatively sedate 3.5% over the last twelve months.

After such a large drop in price, Kingenta Ecological Engineering Group may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.2x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Kingenta Ecological Engineering Group

How Has Kingenta Ecological Engineering Group Performed Recently?

For example, consider that Kingenta Ecological Engineering Group's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kingenta Ecological Engineering Group will help you shine a light on its historical performance.

How Is Kingenta Ecological Engineering Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Kingenta Ecological Engineering Group's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.7%. This means it has also seen a slide in revenue over the longer-term as revenue is down 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 25% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Kingenta Ecological Engineering Group's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Kingenta Ecological Engineering Group's P/S?

Kingenta Ecological Engineering Group's recently weak share price has pulled its P/S back below other Chemicals companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Kingenta Ecological Engineering Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Kingenta Ecological Engineering Group with six simple checks.

If these risks are making you reconsider your opinion on Kingenta Ecological Engineering Group, 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.