Zhongmin Baihui Retail Group Ltd. (SGX:5SR) shareholders that were waiting for something to happen have been dealt a blow with a 48% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Zhongmin Baihui Retail Group's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Singapore's Multiline Retail industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Zhongmin Baihui Retail Group Has Been Performing

As an illustration, revenue has deteriorated at Zhongmin Baihui Retail Group over the last year, which is not ideal at all. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Zhongmin Baihui Retail Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Zhongmin Baihui Retail Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 12% 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 Zhongmin Baihui Retail Group'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.

What We Can Learn From Zhongmin Baihui Retail Group's P/S?

Zhongmin Baihui Retail Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We find it unexpected that Zhongmin Baihui Retail Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 4 warning signs for Zhongmin Baihui Retail Group (2 are potentially serious!) that we have uncovered.

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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