M-Grass Ecology And Environment (Group) Co., Ltd. (SZSE:300355) shareholders have had their patience rewarded with a 38% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that M-Grass Ecology And Environment (Group)'s price-to-sales (or "P/S") ratio of 2.7x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in China, where the median P/S ratio is around 2.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does M-Grass Ecology And Environment (Group)'s Recent Performance Look Like?

M-Grass Ecology And Environment (Group) could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like M-Grass Ecology And Environment (Group)'s to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 64% over the next year. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

In light of this, it's curious that M-Grass Ecology And Environment (Group)'s P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From M-Grass Ecology And Environment (Group)'s P/S?

Its shares have lifted substantially and now M-Grass Ecology And Environment (Group)'s P/S is back within range of 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.

Looking at M-Grass Ecology And Environment (Group)'s analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Having said that, be aware M-Grass Ecology And Environment (Group) is showing 5 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.