The Hangzhou Landscaping Incorporated (SHSE:605303) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Even after such a large jump in price, Hangzhou Landscaping's price-to-sales (or "P/S") ratio of 2.1x might still make it look like a buy right now compared to the Commercial Services industry in China, where around half of the companies have P/S ratios above 3.1x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Hangzhou Landscaping Has Been Performing

Revenue has risen firmly for Hangzhou Landscaping recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

How Is Hangzhou Landscaping's Revenue Growth Trending?

Hangzhou Landscaping'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.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Still, lamentably revenue has fallen 43% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 36% 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 understandable that Hangzhou Landscaping's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Hangzhou Landscaping's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Hangzhou Landscaping's P/S close to the industry median. 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.

As we suspected, our examination of Hangzhou Landscaping revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 1 warning sign for Hangzhou Landscaping that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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