Anhui Sierte Fertilizer industry LTD. ,company's (SZSE:002538) price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.1x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Anhui Sierte Fertilizer industry company

How Has Anhui Sierte Fertilizer industry company Performed Recently?

With revenue growth that's inferior to most other companies of late, Anhui Sierte Fertilizer industry company has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

How Is Anhui Sierte Fertilizer industry company's Revenue Growth Trending?

In order to justify its P/S ratio, Anhui Sierte Fertilizer industry company would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 8.4% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 11% over the next year. With the industry predicted to deliver 27% growth, that's a disappointing outcome.

In light of this, it's understandable that Anhui Sierte Fertilizer industry company's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Anhui Sierte Fertilizer industry company's P/S Mean For Investors?

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.

As we suspected, our examination of Anhui Sierte Fertilizer industry company's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Anhui Sierte Fertilizer industry company that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.