Nanjing Central Emporium (Group) Stocks Co., Ltd. (SHSE:600280) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

The Nanjing Central Emporium (Group) Stocks Co., Ltd. (SHSE:600280) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Nanjing Central Emporium (Group) Stocks' price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Multiline Retail industry in China, where the median P/S ratio is around 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Nanjing Central Emporium (Group) Stocks

What Does Nanjing Central Emporium (Group) Stocks' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Nanjing Central Emporium (Group) Stocks, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Nanjing Central Emporium (Group) Stocks, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Nanjing Central Emporium (Group) Stocks?

In order to justify its P/S ratio, Nanjing Central Emporium (Group) Stocks would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 33% overall drop in revenue. 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.

In light of this, it's somewhat alarming that Nanjing Central Emporium (Group) Stocks' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Nanjing Central Emporium (Group) Stocks' P/S?

Following Nanjing Central Emporium (Group) Stocks' share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We find it unexpected that Nanjing Central Emporium (Group) Stocks trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Nanjing Central Emporium (Group) Stocks that you should be aware of.

If these risks are making you reconsider your opinion on Nanjing Central Emporium (Group) Stocks, 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.