Unfortunately for some shareholders, the Sunac China Holdings Limited (HKG:1918) share price has dived 29% in the last thirty days, prolonging recent pain. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, it's still not a stretch to say that Sunac China Holdings' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Hong Kong, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Sunac China Holdings

What Does Sunac China Holdings' Recent Performance Look Like?

Sunac China Holdings has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. You'd much rather the company improve its revenue if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Sunac China Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 10% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to expand by 12%, which paints a poor picture.

In light of this, it's somewhat alarming that Sunac China Holdings' P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On Sunac China Holdings' P/S

With its share price dropping off a cliff, the P/S for Sunac China Holdings looks to be in line with the rest of the Real Estate 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.

While Sunac China Holdings' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Before you settle on your opinion, we've discovered 4 warning signs for Sunac China Holdings (3 are a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Sunac China Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.