To the annoyance of some shareholders, Zhejiang Yasha Decoration Co.,Ltd (SZSE:002375) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

Following the heavy fall in price, Zhejiang Yasha DecorationLtd's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Consumer Services industry in China, where around half of the companies have P/S ratios above 3.6x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does Zhejiang Yasha DecorationLtd's P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, Zhejiang Yasha DecorationLtd's revenue has been unimpressive. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. Those who are bullish on Zhejiang Yasha DecorationLtd 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 Low P/S?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Zhejiang Yasha DecorationLtd's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 20% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Zhejiang Yasha DecorationLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Zhejiang Yasha DecorationLtd's P/S?

Having almost fallen off a cliff, Zhejiang Yasha DecorationLtd's share price has pulled its P/S way down as well. 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 examination of Zhejiang Yasha DecorationLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Zhejiang Yasha DecorationLtd (of which 1 is a bit concerning!) you should know about.

If you're unsure about the strength of Zhejiang Yasha DecorationLtd's 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.