E-Home Household Service Holdings Limited's (NASDAQ:EJH) 26% Dip In Price Shows Sentiment Is Matching Revenues

To the annoyance of some shareholders, E-Home Household Service Holdings Limited (NASDAQ:EJH) shares are down a considerable 26% 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 99% share price decline.

Following the heavy fall in price, considering around half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider E-Home Household Service Holdings as an solid investment opportunity with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for E-Home Household Service Holdings

How Has E-Home Household Service Holdings Performed Recently?

As an illustration, revenue has deteriorated at E-Home Household Service Holdings over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on E-Home Household Service Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for E-Home Household Service Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is E-Home Household Service Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like E-Home Household Service Holdings' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. The last three years don't look nice either as the company has shrunk revenue by 32% 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 13% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why E-Home Household Service Holdings' P/S is lower than most of its industry peers. 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.

The Bottom Line On E-Home Household Service Holdings' P/S

E-Home Household Service Holdings' P/S has taken a dip along with its share price. 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.

It's no surprise that E-Home Household Service Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for E-Home Household Service Holdings that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.