Shanghai Kaytune Industrial Co.,Ltd's (SZSE:301001) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Shanghai Kaytune Industrial Co.,Ltd (SZSE:301001) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Shanghai Kaytune IndustrialLtd's P/S ratio of 1.7x, since the median price-to-sales (or "P/S") ratio for the Multiline Retail industry in China is also close to 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Shanghai Kaytune IndustrialLtd

How Has Shanghai Kaytune IndustrialLtd Performed Recently?

As an illustration, revenue has deteriorated at Shanghai Kaytune IndustrialLtd over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Shanghai Kaytune IndustrialLtd's earnings, revenue and cash flow.

How Is Shanghai Kaytune IndustrialLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shanghai Kaytune IndustrialLtd'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 6.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.4% in total over the last three years. 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 16% shows it's an unpleasant look.

With this information, we find it concerning that Shanghai Kaytune IndustrialLtd is trading at a fairly similar P/S compared to 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. 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.

The Final Word

With its share price dropping off a cliff, the P/S for Shanghai Kaytune IndustrialLtd looks to be in line with the rest of the Multiline Retail industry. 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.

We find it unexpected that Shanghai Kaytune IndustrialLtd 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 recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Shanghai Kaytune IndustrialLtd (3 are significant) you should be aware of.

If these risks are making you reconsider your opinion on Shanghai Kaytune IndustrialLtd, 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.