ZhongAn Online P & C Insurance Co., Ltd. (HKG:6060) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about ZhongAn Online P & C Insurance's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Insurance industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How ZhongAn Online P & C Insurance Has Been Performing

Recent times haven't been great for ZhongAn Online P & C Insurance as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, ZhongAn Online P & C Insurance would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 60% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 10.0% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 1.7% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that ZhongAn Online P & C Insurance's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

With its share price dropping off a cliff, the P/S for ZhongAn Online P & C Insurance looks to be in line with the rest of the Insurance industry. 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.

We've established that ZhongAn Online P & C Insurance currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Plus, you should also learn about these 4 warning signs we've spotted with ZhongAn Online P & C Insurance (including 2 which are a bit concerning).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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