Zhejiang Zone-King Environmental Sci&Tech Co., Ltd. (SHSE:688701) shares have had a really impressive month, gaining 52% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Zhejiang Zone-King Environmental Sci&Tech's price-to-sales (or "P/S") ratio of 2.8x is worth a mention when the median P/S in China's Commercial Services industry is similar at about 2.7x. 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 Zhejiang Zone-King Environmental Sci&Tech's P/S Mean For Shareholders?

The revenue growth achieved at Zhejiang Zone-King Environmental Sci&Tech over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Zhejiang Zone-King Environmental Sci&Tech will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Zhejiang Zone-King Environmental Sci&Tech's Revenue Growth Trending?

Zhejiang Zone-King Environmental Sci&Tech's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 24% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Zhejiang Zone-King Environmental Sci&Tech'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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Zhejiang Zone-King Environmental Sci&Tech's P/S?

Its shares have lifted substantially and now Zhejiang Zone-King Environmental Sci&Tech's P/S is back within range of the industry median. 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.

We find it unexpected that Zhejiang Zone-King Environmental Sci&Tech 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhejiang Zone-King Environmental Sci&Tech (1 is a bit concerning) you should be aware of.

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.