The Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) share price has fared very poorly over the last month, falling by a substantial 33%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Hebei Sailhero Environmental Protection High-techLtd's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Hebei Sailhero Environmental Protection High-techLtd Performed Recently?

Revenue has risen at a steady rate over the last year for Hebei Sailhero Environmental Protection High-techLtd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Hebei Sailhero Environmental Protection High-techLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Hebei Sailhero Environmental Protection High-techLtd's Revenue Growth Trending?

Hebei Sailhero Environmental Protection High-techLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 8.5% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this in mind, we find it worrying that Hebei Sailhero Environmental Protection High-techLtd's P/S exceeds that of its industry peers. 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 Key Takeaway

Hebei Sailhero Environmental Protection High-techLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

The fact that Hebei Sailhero Environmental Protection High-techLtd 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. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Hebei Sailhero Environmental Protection High-techLtd that you should be aware of.

If these risks are making you reconsider your opinion on Hebei Sailhero Environmental Protection High-techLtd, 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.