Anhui Genuine NewMaterials Co.,Ltd. (SHSE:603429) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Since its price has surged higher, when almost half of the companies in China's Tobacco industry have price-to-sales ratios (or "P/S") below 2x, you may consider Anhui Genuine NewMaterialsLtd as a stock probably not worth researching with its 3.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does Anhui Genuine NewMaterialsLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Anhui Genuine NewMaterialsLtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Do Revenue Forecasts Match The High P/S Ratio?

Anhui Genuine NewMaterialsLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better 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 18%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 21% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the industry is similarly expected to grow by 8.0% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Anhui Genuine NewMaterialsLtd is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Anhui Genuine NewMaterialsLtd's P/S Mean For Investors?

Anhui Genuine NewMaterialsLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 look into Anhui Genuine NewMaterialsLtd has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

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

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

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