E-Home Household Service Holdings Limited (NASDAQ:EJH) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 100% loss during that time.

Following the heavy fall in price, considering around half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider E-Home Household Service Holdings as an solid investment opportunity with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does E-Home Household Service Holdings' P/S Mean For Shareholders?

For example, consider that E-Home Household Service Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is E-Home Household Service Holdings' Revenue Growth Trending?

E-Home Household Service Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. This means it has also seen a slide in revenue over the longer-term as revenue is down 32% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

In light of this, it's understandable that E-Home Household Service Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From E-Home Household Service Holdings' P/S?

E-Home Household Service Holdings' P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of E-Home Household Service Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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.

It is also worth noting that we have found 4 warning signs for E-Home Household Service Holdings (3 are a bit unpleasant!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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