GuangDong GenSho Logistics Co.,LTD's (SHSE:603813) Popularity With Investors Under Threat As Stock Sinks 27%

The GuangDong GenSho Logistics Co.,LTD (SHSE:603813) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think GuangDong GenSho LogisticsLTD's price-to-sales (or "P/S") ratio of 2.9x is worth a mention when the median P/S in China's Transportation industry is similar at about 2.4x. 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 GuangDong GenSho LogisticsLTD

What Does GuangDong GenSho LogisticsLTD's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at GuangDong GenSho LogisticsLTD 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.

Although there are no analyst estimates available for GuangDong GenSho LogisticsLTD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

GuangDong GenSho LogisticsLTD'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.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 7.6% 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 find it worrying that GuangDong GenSho LogisticsLTD's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

With its share price dropping off a cliff, the P/S for GuangDong GenSho LogisticsLTD looks to be in line with the rest of the Transportation 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.

Our look at GuangDong GenSho LogisticsLTD revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 3 warning signs for GuangDong GenSho LogisticsLTD (2 don't sit too well with us!) 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.