There's No Escaping Shenzhen New Nanshan Holding (Group) Co., Ltd.'s (SZSE:002314) Muted Revenues Despite A 36% Share Price Rise

Shenzhen New Nanshan Holding (Group) Co., Ltd. (SZSE:002314) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

Even after such a large jump in price, Shenzhen New Nanshan Holding (Group)'s price-to-sales (or "P/S") ratio of 1x might still make it look like a buy right now compared to the Real Estate industry in China, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Shenzhen New Nanshan Holding (Group)

How Shenzhen New Nanshan Holding (Group) Has Been Performing

For example, consider that Shenzhen New Nanshan Holding (Group)'s financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Shenzhen New Nanshan Holding (Group) will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen New Nanshan Holding (Group) will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, Shenzhen New Nanshan Holding (Group) would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 62% decrease to the company's top line. As a result, revenue from three years ago have also fallen 50% 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 11% 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 understand why Shenzhen New Nanshan Holding (Group)'s P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Shenzhen New Nanshan Holding (Group)'s P/S

Shenzhen New Nanshan Holding (Group)'s stock price has surged recently, but its but its P/S still remains modest. 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.

Our examination of Shenzhen New Nanshan Holding (Group) confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Shenzhen New Nanshan Holding (Group) (of which 2 shouldn't be ignored!) 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.