Shanghai Ace Investment&Development Co.,Ltd's (SHSE:603329) Popularity With Investors Under Threat As Stock Sinks 28%

Shanghai Ace Investment&Development Co.,Ltd (SHSE:603329) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

Even after such a large drop in price, it's still not a stretch to say that Shanghai Ace Investment&DevelopmentLtd's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Logistics industry in China, where the median P/S ratio is around 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shanghai Ace Investment&DevelopmentLtd

How Shanghai Ace Investment&DevelopmentLtd Has Been Performing

As an illustration, revenue has deteriorated at Shanghai Ace Investment&DevelopmentLtd over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shanghai Ace Investment&DevelopmentLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Shanghai Ace Investment&DevelopmentLtd?

Shanghai Ace Investment&DevelopmentLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 29%. Still, the latest three year period has seen an excellent 46% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Shanghai Ace Investment&DevelopmentLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Shanghai Ace Investment&DevelopmentLtd looks to be in line with the rest of the Logistics industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Shanghai Ace Investment&DevelopmentLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 4 warning signs for Shanghai Ace Investment&DevelopmentLtd (2 shouldn't be ignored!) that you need to take into consideration.

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.