The Zhi Sheng Group Holdings Limited (HKG:8370) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately.    The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.  

Although its price has dipped substantially, there still wouldn't be many who think Zhi Sheng Group Holdings' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Hong Kong's Commercial Services industry is similar at about 0.4x.  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.    

SEHK:8370 Price to Sales Ratio vs Industry March 15th 2024

What Does Zhi Sheng Group Holdings' P/S Mean For Shareholders?

For instance, Zhi Sheng Group Holdings' receding revenue in recent times would have to be some food for thought.   It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling.  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.    

Although there are no analyst estimates available for Zhi Sheng Group 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 Zhi Sheng Group Holdings' Revenue Growth Trending?  

There's an inherent assumption that a company should be matching the industry for P/S ratios like Zhi Sheng Group Holdings' to be considered reasonable.  

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line.   As a result, revenue from three years ago have also fallen 7.6% overall.  So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.  

In contrast to the company, the rest of the industry is expected to grow by 5.6% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Zhi Sheng Group Holdings is trading at a fairly similar P/S compared to the industry.  It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects.  Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.  

The Bottom Line On Zhi Sheng Group Holdings' P/S

With its share price dropping off a cliff, the P/S for Zhi Sheng Group Holdings looks to be in line with the rest of the Commercial Services 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.

We find it unexpected that Zhi Sheng Group Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow.  Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long.  Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Zhi Sheng Group Holdings that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.