Those holding Anhui Tongguan Copper Foil Group Co., Ltd. (SZSE:301217) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Anhui Tongguan Copper Foil Group is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in China's Metals and Mining industry have P/S ratios below 1.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Anhui Tongguan Copper Foil Group's P/S Mean For Shareholders?

Recent revenue growth for Anhui Tongguan Copper Foil Group has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

In order to justify its P/S ratio, Anhui Tongguan Copper Foil Group would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.2% last year. This was backed up an excellent period prior to see revenue up by 58% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 11% over the next year. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Anhui Tongguan Copper Foil Group's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

The large bounce in Anhui Tongguan Copper Foil Group's shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Anhui Tongguan Copper Foil Group, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Anhui Tongguan Copper Foil Group (2 are a bit unpleasant!) that you should be aware of before investing here.

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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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.