Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Hebei Sailhero Environmental Protection High-techLtd's P/S ratio of 3.2x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Hebei Sailhero Environmental Protection High-techLtd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Hebei Sailhero Environmental Protection High-techLtd, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Hebei Sailhero Environmental Protection High-techLtd's Revenue Growth Trending?

Hebei Sailhero Environmental Protection High-techLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 3.0% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 8.5% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 25% shows it's an unpleasant look.

With this in mind, we find it worrying that Hebei Sailhero Environmental Protection High-techLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Hebei Sailhero Environmental Protection High-techLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Hebei Sailhero Environmental Protection High-techLtd's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Hebei Sailhero Environmental Protection High-techLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 1 warning sign for Hebei Sailhero Environmental Protection High-techLtd that you need to take into consideration.

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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