Chongqing Sansheng Industrial Co.,Ltd. (SZSE:002742) shares have continued their recent momentum with a 33% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Even after such a large jump in price, when close to half the companies operating in China's Chemicals industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Chongqing Sansheng IndustrialLtd as an enticing stock to check out with its 0.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Chongqing Sansheng IndustrialLtd's P/S Mean For Shareholders?

For instance, Chongqing Sansheng IndustrialLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Chongqing Sansheng IndustrialLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

How Is Chongqing Sansheng IndustrialLtd's Revenue Growth Trending?

Chongqing Sansheng IndustrialLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 22%. This means it has also seen a slide in revenue over the longer-term as revenue is down 36% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 21% shows it's an unpleasant look.

In light of this, it's understandable that Chongqing Sansheng IndustrialLtd'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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Chongqing Sansheng IndustrialLtd's P/S

Despite Chongqing Sansheng IndustrialLtd's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Chongqing Sansheng IndustrialLtd 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Chongqing Sansheng IndustrialLtd that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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