Despite an already strong run, Anhui Jianghuai Automobile Group Corp.,Ltd. (SHSE:600418) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 91%.

In spite of the firm bounce in price, there still wouldn't be many who think Anhui Jianghuai Automobile GroupLtd's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in China's Auto industry is similar at about 1.7x. 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.

How Has Anhui Jianghuai Automobile GroupLtd Performed Recently?

Recent times haven't been great for Anhui Jianghuai Automobile GroupLtd as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Is There Some Revenue Growth Forecasted For Anhui Jianghuai Automobile GroupLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Anhui Jianghuai Automobile GroupLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.7%. Still, lamentably revenue has fallen 3.7% in aggregate from three years ago, which is disappointing. 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 nine analysts covering the company suggest revenue should grow by 25% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 25% per annum, which is not materially different.

In light of this, it's understandable that Anhui Jianghuai Automobile GroupLtd's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Its shares have lifted substantially and now Anhui Jianghuai Automobile GroupLtd's P/S is back within range of the industry median. 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.

A Anhui Jianghuai Automobile GroupLtd's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Auto industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Having said that, be aware Anhui Jianghuai Automobile GroupLtd is showing 2 warning signs in our investment analysis, you should know about.

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.