DongGuan Winnerway Industry Zone LTD.'s (SZSE:000573) Popularity With Investors Under Threat As Stock Sinks 25%

The DongGuan Winnerway Industry Zone LTD. (SZSE:000573) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Although its price has dipped substantially, you could still be forgiven for thinking DongGuan Winnerway Industry Zone is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in China's Real Estate industry have P/S ratios below 1.7x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for DongGuan Winnerway Industry Zone

What Does DongGuan Winnerway Industry Zone's Recent Performance Look Like?

For example, consider that DongGuan Winnerway Industry Zone's financial performance has been poor lately as its revenue has been in decline. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 DongGuan Winnerway Industry Zone's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For DongGuan Winnerway Industry Zone?

There's an inherent assumption that a company should outperform the industry for P/S ratios like DongGuan Winnerway Industry Zone's to be considered reasonable.

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 55%. As a result, revenue from three years ago have also fallen 34% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 9.0% shows it's an unpleasant look.

With this information, we find it concerning that DongGuan Winnerway Industry Zone is trading at a P/S higher than 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 heavily on the share price eventually.

What We Can Learn From DongGuan Winnerway Industry Zone's P/S?

Despite the recent share price weakness, DongGuan Winnerway Industry Zone's P/S remains higher than most other companies in the industry. 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.

Our examination of DongGuan Winnerway Industry Zone 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. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with DongGuan Winnerway Industry Zone, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on DongGuan Winnerway Industry Zone, 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.