You may think that with a price-to-sales (or "P/S") ratio of 0.6x Shenzhen Centralcon Investment Holding Co., Ltd. (SZSE:000042) is a stock worth checking out, seeing as almost half of all the Real Estate companies in China have P/S ratios greater than 1.5x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Shenzhen Centralcon Investment Holding's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Shenzhen Centralcon Investment Holding 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. Those who are bullish on Shenzhen Centralcon Investment Holding will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Shenzhen Centralcon Investment Holding?

In order to justify its P/S ratio, Shenzhen Centralcon Investment Holding would need to produce sluggish growth that's trailing 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%. The last three years don't look nice either as the company has shrunk revenue by 41% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 9.8% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Shenzhen Centralcon Investment Holding's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Shenzhen Centralcon Investment Holding's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that Shenzhen Centralcon Investment Holding maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Shenzhen Centralcon Investment Holding that you should be aware of.

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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