Henan Xinning Modern Logistics Co.,Ltd.'s (SZSE:300013) Popularity With Investors Under Threat As Stock Sinks 28%

Henan Xinning Modern Logistics Co.,Ltd. (SZSE:300013) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Even after such a large drop in price, you could still be forgiven for thinking Henan Xinning Modern LogisticsLtd 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 1.1x. 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.

See our latest analysis for Henan Xinning Modern LogisticsLtd

What Does Henan Xinning Modern LogisticsLtd's Recent Performance Look Like?

Revenue has risen firmly for Henan Xinning Modern LogisticsLtd recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Henan Xinning Modern LogisticsLtd's earnings, revenue and cash flow.

How Is Henan Xinning Modern LogisticsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Henan Xinning Modern LogisticsLtd's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 47% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

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

In light of this, it's alarming that Henan Xinning Modern LogisticsLtd'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. There's a very 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 Bottom Line On Henan Xinning Modern LogisticsLtd's P/S

Henan Xinning Modern LogisticsLtd's P/S remain high even after its stock plunged. 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 Henan Xinning Modern LogisticsLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Henan Xinning Modern LogisticsLtd that you should be aware of.

If you're unsure about the strength of Henan Xinning Modern LogisticsLtd'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.