Risks Still Elevated At These Prices As Weigang Environmental Technology Holding Group Limited (HKG:1845) Shares Dive 28%

Weigang Environmental Technology Holding Group Limited (HKG:1845) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Indeed, the recent drop has reduced its annual gain to a relatively sedate 6.6% over the last twelve months.

Even after such a large drop in price, it's still not a stretch to say that Weigang Environmental Technology Holding Group's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in Hong Kong, where the median P/S ratio is around 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Weigang Environmental Technology Holding Group

How Has Weigang Environmental Technology Holding Group Performed Recently?

Revenue has risen firmly for Weigang Environmental Technology Holding Group 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. If you like the company, you'd be hoping this isn't 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 Weigang Environmental Technology Holding Group, 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?

The only time you'd be comfortable seeing a P/S like Weigang Environmental Technology Holding Group's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.4% last year. Still, lamentably revenue has fallen 57% in aggregate from three years ago, which is disappointing. 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 4.5% shows it's an unpleasant look.

With this information, we find it concerning that Weigang Environmental Technology Holding Group is trading at a fairly similar P/S compared to the industry. 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 Bottom Line On Weigang Environmental Technology Holding Group's P/S

With its share price dropping off a cliff, the P/S for Weigang Environmental Technology Holding Group looks to be in line with the rest of the Commercial Services industry. 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 look at Weigang Environmental Technology Holding Group 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Weigang Environmental Technology Holding Group (1 is concerning!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.