You may think that with a price-to-sales (or "P/S") ratio of 0.6x Tangshan Jidong Cement Co.,Ltd. (SZSE:000401) is a stock worth checking out, seeing as almost half of all the Basic Materials companies in China have P/S ratios greater than 1.4x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Tangshan Jidong CementLtd

How Has Tangshan Jidong CementLtd Performed Recently?

Tangshan Jidong CementLtd has been struggling lately as its revenue has declined faster than most other companies. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

How Is Tangshan Jidong CementLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Tangshan Jidong CementLtd'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%. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 5.5% over the next year. That's shaping up to be materially lower than the 17% growth forecast for the broader industry.

With this information, we can see why Tangshan Jidong CementLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Tangshan Jidong CementLtd's P/S?

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.

We've established that Tangshan Jidong CementLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Tangshan Jidong CementLtd that you need to take into consideration.

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.