To the annoyance of some shareholders, China Primary Energy Holdings Limited (HKG:8117) shares are down a considerable 44% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that China Primary Energy Holdings' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Gas Utilities industry in Hong Kong, where the median P/S ratio is around 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does China Primary Energy Holdings' Recent Performance Look Like?

It looks like revenue growth has deserted China Primary Energy Holdings recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. Those who are bullish on China Primary Energy Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

In order to justify its P/S ratio, China Primary Energy Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 108% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 3.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that China Primary Energy Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does China Primary Energy Holdings' P/S Mean For Investors?

China Primary Energy Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

To our surprise, China Primary Energy Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Having said that, be aware China Primary Energy Holdings is showing 4 warning signs in our investment analysis, and 3 of those are significant.

If you're unsure about the strength of China Primary Energy Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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