The Fujian Green Pine Co., Ltd. (SZSE:300132) share price has done very well over the last month, posting an excellent gain of 27%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Although its price has surged higher, Fujian Green Pine's price-to-sales (or "P/S") ratio of 1.1x might still 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 2.2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Has Fujian Green Pine Performed Recently?

Fujian Green Pine has been struggling lately as its revenue has declined faster than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Fujian Green Pine?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Fujian Green Pine's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. As a result, revenue from three years ago have also fallen 51% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 23%, which is not materially different.

With this information, we find it odd that Fujian Green Pine is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Fujian Green Pine's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that Fujian Green Pine currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for Fujian Green Pine that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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