Subdued Growth No Barrier To Shenzhen Prolto Supply Chain Management Co.,Ltd (SZSE:002769) With Shares Advancing 35%

Shenzhen Prolto Supply Chain Management Co.,Ltd (SZSE:002769) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 45% over that time.

After such a large jump in price, you could be forgiven for thinking Shenzhen Prolto Supply Chain ManagementLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.9x, considering almost half the companies in China's Logistics industry have P/S ratios below 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Shenzhen Prolto Supply Chain ManagementLtd

How Shenzhen Prolto Supply Chain ManagementLtd Has Been Performing

As an illustration, revenue has deteriorated at Shenzhen Prolto Supply Chain ManagementLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Prolto Supply Chain ManagementLtd will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/S as high as Shenzhen Prolto Supply Chain ManagementLtd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 57% decrease to the company's top line. As a result, revenue from three years ago have also fallen 81% overall. 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.

In light of this, it's alarming that Shenzhen Prolto Supply Chain ManagementLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Shenzhen Prolto Supply Chain ManagementLtd's P/S Mean For Investors?

The large bounce in Shenzhen Prolto Supply Chain ManagementLtd's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shenzhen Prolto Supply Chain ManagementLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Shenzhen Prolto Supply Chain ManagementLtd (1 is potentially serious!) that you need to take into consideration.

If you're unsure about the strength of Shenzhen Prolto Supply Chain ManagementLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.