Shida Shinghwa Advanced Material Group Co., Ltd. (SHSE:603026) shares have continued their recent momentum with a 31% gain in the last month alone. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.0% over the last year.

In spite of the firm bounce in price, Shida Shinghwa Advanced Material Group's price-to-sales (or "P/S") ratio of 1.7x 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 2.3x 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.

How Has Shida Shinghwa Advanced Material Group Performed Recently?

Shida Shinghwa Advanced Material Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is Shida Shinghwa Advanced Material Group's Revenue Growth Trending?

In order to justify its P/S ratio, Shida Shinghwa Advanced Material Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. As a result, revenue from three years ago have also fallen 18% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the one analyst watching the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Shida Shinghwa Advanced Material Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Shida Shinghwa Advanced Material Group's P/S Mean For Investors?

Despite Shida Shinghwa Advanced Material Group's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Shida Shinghwa Advanced Material Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Shida Shinghwa Advanced Material Group with six simple checks.

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.