Unfortunately for some shareholders, the Hunan Baili Engineering Sci&Tech Co.,Ltd (SHSE:603959) share price has dived 29% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 84% share price decline.

Since its price has dipped substantially, when close to half the companies operating in China's Construction industry have price-to-sales ratios (or "P/S") above 1x, you may consider Hunan Baili Engineering Sci&TechLtd as an enticing stock to check out with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Hunan Baili Engineering Sci&TechLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Hunan Baili Engineering Sci&TechLtd 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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Hunan Baili Engineering Sci&TechLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Hunan Baili Engineering Sci&TechLtd'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 45%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 25% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Hunan Baili Engineering Sci&TechLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Hunan Baili Engineering Sci&TechLtd's P/S?

The southerly movements of Hunan Baili Engineering Sci&TechLtd's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

In line with expectations, Hunan Baili Engineering Sci&TechLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Hunan Baili Engineering Sci&TechLtd has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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