The Guangzhou Lingnan Group Holdings Company Limited (SZSE:000524) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

After such a large drop in price, Guangzhou Lingnan Group Holdings' price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the wider Hospitality industry in China, where around half of the companies have P/S ratios above 5.2x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does Guangzhou Lingnan Group Holdings' Recent Performance Look Like?

Recent times have been advantageous for Guangzhou Lingnan Group Holdings as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is Guangzhou Lingnan Group Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Guangzhou Lingnan Group Holdings would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 124% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 17% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 82% as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 37%, which is noticeably less attractive.

In light of this, it's peculiar that Guangzhou Lingnan Group Holdings' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Guangzhou Lingnan Group Holdings' P/S Mean For Investors?

Shares in Guangzhou Lingnan Group Holdings have plummeted and its P/S has followed suit. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems Guangzhou Lingnan Group Holdings currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Guangzhou Lingnan Group Holdings that you need to take into consideration.

If these risks are making you reconsider your opinion on Guangzhou Lingnan Group Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.