Beijing Dalong Weiye Real Estate Development Co.,Ltd's (SHSE:600159) Popularity With Investors Under Threat As Stock Sinks 28%

To the annoyance of some shareholders, Beijing Dalong Weiye Real Estate Development Co.,Ltd (SHSE:600159) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 7.7% over that longer period.

Even after such a large drop in price, you could still be forgiven for thinking Beijing Dalong Weiye Real Estate DevelopmentLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.7x, considering almost half the companies in China's Real Estate industry have P/S ratios below 1.6x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing Dalong Weiye Real Estate DevelopmentLtd

How Beijing Dalong Weiye Real Estate DevelopmentLtd Has Been Performing

For instance, Beijing Dalong Weiye Real Estate DevelopmentLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Beijing Dalong Weiye Real Estate DevelopmentLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Beijing Dalong Weiye Real Estate DevelopmentLtd?

Beijing Dalong Weiye Real Estate DevelopmentLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. As a result, revenue from three years ago have also fallen 28% 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 5.4% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Beijing Dalong Weiye Real Estate DevelopmentLtd is trading at a P/S higher than the industry. 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 Final Word

There's still some elevation in Beijing Dalong Weiye Real Estate DevelopmentLtd's P/S, even if the same can't be said for its share price recently. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Beijing Dalong Weiye Real Estate DevelopmentLtd 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. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

You need to take note of risks, for example - Beijing Dalong Weiye Real Estate DevelopmentLtd has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.