Despite an already strong run, Tongxing Environmental Protection Technology Co.,Ltd (SZSE:003027) shares have been powering on, with a gain of 25% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.1% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Tongxing Environmental Protection TechnologyLtd's price-to-sales (or "P/S") ratio of 3.5x is worth a mention when the median P/S in China's Commercial Services industry is similar at about 3.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Tongxing Environmental Protection TechnologyLtd's Recent Performance Look Like?

For example, consider that Tongxing Environmental Protection TechnologyLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Tongxing Environmental Protection TechnologyLtd's Revenue Growth Trending?

Tongxing Environmental Protection TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 24%. This means it has also seen a slide in revenue over the longer-term as revenue is down 22% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 35% shows it's an unpleasant look.

With this information, we find it concerning that Tongxing Environmental Protection TechnologyLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Tongxing Environmental Protection TechnologyLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Tongxing Environmental Protection TechnologyLtd's P/S is back within range of 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.

We find it unexpected that Tongxing Environmental Protection TechnologyLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you settle on your opinion, we've discovered 3 warning signs for Tongxing Environmental Protection TechnologyLtd (1 is concerning!) that you should be aware of.

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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