China e-Wallet Payment Group Limited (HKG:802) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

Following the heavy fall in price, when close to half the companies operating in Hong Kong's Software industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider China e-Wallet Payment Group as an enticing stock to check out with its 0.4x 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.

View our latest analysis for China e-Wallet Payment Group

What Does China e-Wallet Payment Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at China e-Wallet Payment Group over the last year, which is not ideal at all. 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.

How Is China e-Wallet Payment Group's Revenue Growth Trending?

China e-Wallet Payment Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 32% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why China e-Wallet Payment Group's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On China e-Wallet Payment Group's P/S

China e-Wallet Payment Group's recently weak share price has pulled its P/S back below other Software companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of China e-Wallet Payment Group revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China e-Wallet Payment Group, and understanding should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.