The China Maple Leaf Educational Systems Limited (HKG:1317) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. 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.

Although its price has dipped substantially, it's still not a stretch to say that China Maple Leaf Educational Systems' price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Consumer Services industry in Hong Kong, where the median P/S ratio is around 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does China Maple Leaf Educational Systems' Recent Performance Look Like?

Revenue has risen firmly for China Maple Leaf Educational Systems recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like China Maple Leaf Educational Systems' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen an excellent 198% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 20%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that China Maple Leaf Educational Systems is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does China Maple Leaf Educational Systems' P/S Mean For Investors?

Following China Maple Leaf Educational Systems' share price tumble, its P/S is just clinging on to the industry median P/S. 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 didn't quite envision China Maple Leaf Educational Systems' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 5 warning signs for China Maple Leaf Educational Systems you should be aware of, and 2 of them are significant.

If these risks are making you reconsider your opinion on China Maple Leaf Educational Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.