Liaoning Oxiranchem,Inc. (SZSE:300082) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

Although its price has surged higher, Liaoning OxiranchemInc may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 1.8x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Liaoning OxiranchemInc Has Been Performing

Liaoning OxiranchemInc hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

Liaoning OxiranchemInc'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.

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 24%. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 23% over the next year. With the industry predicted to deliver 24% growth , the company is positioned for a comparable revenue result.

With this information, we find it odd that Liaoning OxiranchemInc is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Liaoning OxiranchemInc's P/S close to the industry median. 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.

Our examination of Liaoning OxiranchemInc's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Liaoning OxiranchemInc (1 is concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Liaoning OxiranchemInc, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.