Anhui Tongyuan Environment Energy Saving Co.,Ltd (SHSE:688679) shares have continued their recent momentum with a 31% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.2% in the last twelve months.

In spite of the firm bounce in price, Anhui Tongyuan Environment Energy SavingLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Commercial Services industry in China have P/S ratios greater than 3.4x and even P/S higher than 6x 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 so limited.

How Anhui Tongyuan Environment Energy SavingLtd Has Been Performing

It looks like revenue growth has deserted Anhui Tongyuan Environment Energy SavingLtd recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on Anhui Tongyuan Environment Energy SavingLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Anhui Tongyuan Environment Energy SavingLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Anhui Tongyuan Environment Energy SavingLtd's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Anhui Tongyuan Environment Energy SavingLtd's P/S falls short of the mark set by its industry peers. 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.

What Does Anhui Tongyuan Environment Energy SavingLtd's P/S Mean For Investors?

Even after such a strong price move, Anhui Tongyuan Environment Energy SavingLtd's P/S still trails the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

In line with expectations, Anhui Tongyuan Environment Energy SavingLtd 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Anhui Tongyuan Environment Energy SavingLtd (1 makes us a bit uncomfortable) 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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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.