Eshallgo Inc.'s (NASDAQ:EHGO) Popularity With Investors Under Threat As Stock Sinks 43%

To the annoyance of some shareholders, Eshallgo Inc. (NASDAQ:EHGO) shares are down a considerable 43% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 90% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Eshallgo's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in the United States is also close to 1.2x. 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.

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View our latest analysis for Eshallgo

How Eshallgo Has Been Performing

As an illustration, revenue has deteriorated at Eshallgo over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Eshallgo's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Eshallgo's to be considered reasonable.

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 21%. As a result, revenue from three years ago have also fallen 44% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.8% shows it's an unpleasant look.

With this information, we find it concerning that Eshallgo is trading at a fairly similar P/S compared to the industry. 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.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Eshallgo looks to be in line with the rest of the Commercial Services 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.

Our look at Eshallgo revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Eshallgo (of which 2 can't be ignored!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.