To the annoyance of some shareholders, Jiangsu AMER New Material Co., Ltd. (SZSE:002201) shares are down a considerable 26% 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 62% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Jiangsu AMER New Material's P/S ratio of 2.1x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in China is also close to 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Jiangsu AMER New Material

How Jiangsu AMER New Material Has Been Performing

Revenue has risen firmly for Jiangsu AMER New Material recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Jiangsu AMER New Material?

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

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen a 27% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Jiangsu AMER New Material's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Jiangsu AMER New Material's P/S?

Jiangsu AMER New Material's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 Jiangsu AMER New Material's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Jiangsu AMER New Material (1 is potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Jiangsu AMER New Material, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.