Unfortunately for some shareholders, the Zhengwei Group Holdings Company Limited (HKG:2147) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 97% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Zhengwei Group Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.4x. 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 Zhengwei Group Holdings' Recent Performance Look Like?

Revenue has risen firmly for Zhengwei Group Holdings recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Zhengwei Group Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For Zhengwei Group Holdings?

In order to justify its P/S ratio, Zhengwei Group Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The latest three year period has also seen an excellent 57% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 7.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Zhengwei Group Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Zhengwei Group Holdings' P/S?

Zhengwei Group Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We didn't quite envision Zhengwei Group Holdings' 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. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.

Before you take the next step, you should know about the 3 warning signs for Zhengwei Group Holdings (2 shouldn't be ignored!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.