Yunnan Luoping Zinc&Electricity Co., Ltd. (SZSE:002114) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that Yunnan Luoping Zinc&Electricity's price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in China, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Yunnan Luoping Zinc&Electricity Performed Recently?

For example, consider that Yunnan Luoping Zinc&Electricity's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Yunnan Luoping Zinc&Electricity's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 5.6% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 7,784,344% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Yunnan Luoping Zinc&Electricity's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Following Yunnan Luoping Zinc&Electricity's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our look at Yunnan Luoping Zinc&Electricity revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for Yunnan Luoping Zinc&Electricity that we have uncovered.

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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