The China YuHua Education Corporation Limited (HKG:6169) share price has fared very poorly over the last month, falling by a substantial 28%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Since its price has dipped substantially, when close to half the companies operating in Hong Kong's Consumer Services industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider China YuHua Education 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.

Check out our latest analysis for China YuHua Education

What Does China YuHua Education's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, China YuHua Education's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For China YuHua Education?

China YuHua Education's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 17% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 4.7% each year over the next three years. That's shaping up to be materially lower than the 12% each year growth forecast for the broader industry.

With this in consideration, its clear as to why China YuHua Education's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On China YuHua Education's P/S

China YuHua Education's recently weak share price has pulled its P/S back below other Consumer Services companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that China YuHua Education maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for China YuHua Education 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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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.