Market Cool On MECOM Power and Construction Limited's (HKG:1183) Revenues Pushing Shares 25% Lower

Unfortunately for some shareholders, the MECOM Power and Construction Limited (HKG:1183) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think MECOM Power and Construction's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Construction industry is similar at about 0.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for MECOM Power and Construction

What Does MECOM Power and Construction's Recent Performance Look Like?

As an illustration, revenue has deteriorated at MECOM Power and Construction over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 MECOM Power and Construction's earnings, revenue and cash flow.

How Is MECOM Power and Construction's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like MECOM Power and Construction's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 6.9% decrease to the company's top line. Still, the latest three year period has seen an excellent 73% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.3% shows it's noticeably more attractive.

In light of this, it's curious that MECOM Power and Construction's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Following MECOM Power and Construction's share price tumble, its P/S is just clinging on to the industry median P/S. 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 didn't quite envision MECOM Power and Construction's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for MECOM Power and Construction (1 shouldn't be ignored!) that you should be aware of.

If you're unsure about the strength of MECOM Power and Construction'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.