Improved Revenues Required Before China Dredging Environment Protection Holdings Limited (HKG:871) Stock's 28% Jump Looks Justified

China Dredging Environment Protection Holdings Limited (HKG:871) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Even after such a large jump in price, it would still be understandable if you think China Dredging Environment Protection Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in Hong Kong's Infrastructure industry have P/S ratios above 1.6x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for China Dredging Environment Protection Holdings

How Has China Dredging Environment Protection Holdings Performed Recently?

For instance, China Dredging Environment Protection Holdings' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Dredging Environment Protection Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For China Dredging Environment Protection Holdings?

The only time you'd be truly comfortable seeing a P/S as low as China Dredging Environment Protection Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 3.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 26% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 3.4% 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 understandable that China Dredging Environment Protection Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does China Dredging Environment Protection Holdings' P/S Mean For Investors?

Despite China Dredging Environment Protection Holdings' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that China Dredging Environment Protection Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

We don't want to rain on the parade too much, but we did also find 1 warning sign for China Dredging Environment Protection Holdings that you need to be mindful of.

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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.