Those holding Guizhou Transportation Planning Survey&Design Academe Co.,Ltd. (SHSE:603458) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 42% in the last twelve months.

In spite of the firm bounce in price, Guizhou Transportation Planning Survey&Design AcademeLtd's price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the Professional Services industry in China, where around half of the companies have P/S ratios above 2.6x 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 reduced P/S.

What Does Guizhou Transportation Planning Survey&Design AcademeLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Guizhou Transportation Planning Survey&Design AcademeLtd over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Guizhou Transportation Planning Survey&Design AcademeLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

How Is Guizhou Transportation Planning Survey&Design AcademeLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Guizhou Transportation Planning Survey&Design AcademeLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 8.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 37% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 41% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Guizhou Transportation Planning Survey&Design AcademeLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Guizhou Transportation Planning Survey&Design AcademeLtd's P/S?

Guizhou Transportation Planning Survey&Design AcademeLtd's stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Guizhou Transportation Planning Survey&Design AcademeLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Guizhou Transportation Planning Survey&Design AcademeLtd (2 are significant!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Guizhou Transportation Planning Survey&Design AcademeLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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