To the annoyance of some shareholders, Jiayu Holding Co.,Ltd. (SZSE:300117) shares are down a considerable 33% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 71% loss during that time.

Since its price has dipped substantially, when close to half the companies operating in China's Building industry have price-to-sales ratios (or "P/S") above 1.4x, you may consider Jiayu HoldingLtd as an enticing stock to check out with its 0.7x 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.

How Jiayu HoldingLtd Has Been Performing

For example, consider that Jiayu HoldingLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Jiayu HoldingLtd?

The only time you'd be truly comfortable seeing a P/S as low as Jiayu HoldingLtd's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 59%. As a result, revenue from three years ago have also fallen 61% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's understandable that Jiayu HoldingLtd's P/S would sit below the majority of other companies. 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 Jiayu HoldingLtd's P/S

Jiayu HoldingLtd's P/S has taken a dip along with its share price. 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.

It's no surprise that Jiayu HoldingLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Jiayu HoldingLtd (of which 3 make us uncomfortable!) you should know about.

If you're unsure about the strength of Jiayu HoldingLtd'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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com