More Unpleasant Surprises Could Be In Store For Wan Leader International Limited's (HKG:8482) Shares After Tumbling 28%

To the annoyance of some shareholders, Wan Leader International Limited (HKG:8482) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that Wan Leader International's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Logistics industry in Hong Kong, where the median P/S ratio is around 0.2x. 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.

See our latest analysis for Wan Leader International

How Has Wan Leader International Performed Recently?

For example, consider that Wan Leader International's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Wan Leader International will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Wan Leader International?

The only time you'd be comfortable seeing a P/S like Wan Leader International's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Wan Leader International's P/S sits in line with the majority of other companies. 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.

The Bottom Line On Wan Leader International's P/S

Following Wan Leader International's share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Wan Leader International 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 4 warning signs we've spotted with Wan Leader International (including 3 which are a bit unpleasant).

If you're unsure about the strength of Wan Leader International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com