The Polyrocks Chemical Co.,LTD (SHSE:688669) share price has done very well over the last month, posting an excellent gain of 37%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Even after such a large jump in price, Polyrocks ChemicalLTD's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Has Polyrocks ChemicalLTD Performed Recently?

Revenue has risen firmly for Polyrocks ChemicalLTD recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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 out of favour.

How Is Polyrocks ChemicalLTD's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Polyrocks ChemicalLTD's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.9%. This was backed up an excellent period prior to see revenue up by 70% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 21% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Polyrocks ChemicalLTD is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What Does Polyrocks ChemicalLTD's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Polyrocks ChemicalLTD's P/S close to 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.

Our examination of Polyrocks ChemicalLTD revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Polyrocks ChemicalLTD, and understanding them should be part of your investment process.

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.