Yunnan Luoping Zinc&Electricity Co., Ltd. (SZSE:002114) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Yunnan Luoping Zinc&Electricity's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Yunnan Luoping Zinc&Electricity Has Been Performing

For instance, Yunnan Luoping Zinc&Electricity's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Yunnan Luoping Zinc&Electricity's Revenue Growth Trending?

Yunnan Luoping Zinc&Electricity'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.6%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

In contrast to the company, the rest of the industry is expected to grow by 14% 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 Yunnan Luoping Zinc&Electricity 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. 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

Yunnan Luoping Zinc&Electricity appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Yunnan Luoping Zinc&Electricity revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Yunnan Luoping Zinc&Electricity you should know about.

If you're unsure about the strength of Yunnan Luoping Zinc&Electricity's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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