Some Confidence Is Lacking In China Tianrui Group Cement Company Limited (HKG:1252) As Shares Slide 53%

China Tianrui Group Cement Company Limited (HKG:1252) shareholders won't be pleased to see that the share price has had a very rough month, dropping 53% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 95% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that China Tianrui Group Cement's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Basic Materials industry in Hong Kong, where the median P/S ratio is around 0.5x. 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.

Check out our latest analysis for China Tianrui Group Cement

What Does China Tianrui Group Cement's P/S Mean For Shareholders?

For instance, China Tianrui Group Cement's receding revenue in recent times would have to be some food for thought. 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 China Tianrui Group Cement's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like China Tianrui Group Cement's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 33%. The last three years don't look nice either as the company has shrunk revenue by 49% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 10.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that China Tianrui Group Cement 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. There's a 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.

What Does China Tianrui Group Cement's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for China Tianrui Group Cement looks to be in line with the rest of the Basic Materials industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that China Tianrui Group Cement currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for China Tianrui Group Cement 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.

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.