Shimao Services Holdings Limited (HKG:873) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Shimao Services Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Real Estate industry is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Shimao Services Holdings' P/S Mean For Shareholders?

Shimao Services Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Shimao Services Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 4.1% decrease to the company's top line. Still, the latest three year period has seen an excellent 164% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 7.2% during the coming year according to the six analysts following the company. With the industry predicted to deliver 7.2% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Shimao Services Holdings' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Shimao Services 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.

A Shimao Services Holdings' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Real Estate industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shimao Services Holdings with six simple checks on some of these key factors.

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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