Xinjiang Tianshun Supply Chain Co., Ltd. (SZSE:002800) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

Xinjiang Tianshun Supply Chain Co., Ltd. (SZSE:002800) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that Xinjiang Tianshun Supply Chain's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Logistics industry in China, where the median P/S ratio is around 1.1x. 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 Xinjiang Tianshun Supply Chain

What Does Xinjiang Tianshun Supply Chain's P/S Mean For Shareholders?

Revenue has risen firmly for Xinjiang Tianshun Supply Chain recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Xinjiang Tianshun Supply Chain will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Xinjiang Tianshun Supply Chain's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Xinjiang Tianshun Supply Chain's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The solid recent performance means it was also able to grow revenue by 8.2% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Xinjiang Tianshun Supply Chain is trading at a fairly similar P/S compared to the industry. 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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Following Xinjiang Tianshun Supply Chain's share price tumble, its P/S is just clinging on to the industry median P/S. 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've established that Xinjiang Tianshun Supply Chain's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Xinjiang Tianshun Supply Chain you should know about.

If these risks are making you reconsider your opinion on Xinjiang Tianshun Supply Chain, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.