Unfortunately for some shareholders, the DIMA HOLDINGS Co. ,Ltd. (SHSE:600565) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.

After such a large drop in price, DIMA HOLDINGS Ltd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Real Estate industry in China have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does DIMA HOLDINGS Ltd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at DIMA HOLDINGS Ltd 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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

DIMA HOLDINGS Ltd'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.

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 39%. This means it has also seen a slide in revenue over the longer-term as revenue is down 12% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 9.7% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why DIMA HOLDINGS Ltd's P/S is lower than most of its industry peers. 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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On DIMA HOLDINGS Ltd's P/S

DIMA HOLDINGS Ltd's recently weak share price has pulled its P/S back below other Real Estate companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of DIMA HOLDINGS Ltd 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. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with DIMA HOLDINGS Ltd (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on DIMA HOLDINGS Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.