Anhui Yuanchen Environmental Protection Science&Technology Co.,Ltd. (SHSE:688659) shareholders have had their patience rewarded with a 51% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Even after such a large jump in price, Anhui Yuanchen Environmental Protection Science&TechnologyLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Anhui Yuanchen Environmental Protection Science&TechnologyLtd Has Been Performing

Revenue has risen firmly for Anhui Yuanchen Environmental Protection Science&TechnologyLtd 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Anhui Yuanchen Environmental Protection Science&TechnologyLtd would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Anhui Yuanchen Environmental Protection Science&TechnologyLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Anhui Yuanchen Environmental Protection Science&TechnologyLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

In line with expectations, Anhui Yuanchen Environmental Protection Science&TechnologyLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 2 warning signs we've spotted with Anhui Yuanchen Environmental Protection Science&TechnologyLtd (including 1 which shouldn't be ignored).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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