Anhui Wantong Technology Co.,Ltd. (SZSE:002331) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Anhui Wantong TechnologyLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.5x, since almost half of all companies in the IT industry in China have P/S ratios greater than 4.8x and even P/S higher than 9x are not unusual. 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 Wantong TechnologyLtd

How Has Anhui Wantong TechnologyLtd Performed Recently?

Anhui Wantong TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Anhui Wantong TechnologyLtd?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Still, lamentably revenue has fallen 32% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 49% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Anhui Wantong TechnologyLtd is trading at a P/S lower than the industry. 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 Wantong TechnologyLtd's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Anhui Wantong TechnologyLtd's P/S close to the industry median. 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.

It's no surprise that Anhui Wantong TechnologyLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Anhui Wantong TechnologyLtd that we have uncovered.

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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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.