Jiangsu Shuangxing Color Plastic New Materials Co., Ltd.'s (SZSE:002585) price-to-sales (or "P/S") ratio of 1.7x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Packaging industry in China have P/S ratios greater than 2.3x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Jiangsu Shuangxing Color Plastic New Materials

How Has Jiangsu Shuangxing Color Plastic New Materials Performed Recently?

Jiangsu Shuangxing Color Plastic New Materials has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Shuangxing Color Plastic New Materials' to be considered reasonable.

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 21%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 9.8% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 30% over the next year. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Jiangsu Shuangxing Color Plastic New Materials is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Jiangsu Shuangxing Color Plastic New Materials' P/S?

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.

Jiangsu Shuangxing Color Plastic New Materials' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jiangsu Shuangxing Color Plastic New Materials that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.