Anhui Jianghuai Automobile Group Corp.,Ltd.'s (SHSE:600418) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Those holding Anhui Jianghuai Automobile Group Corp.,Ltd. (SHSE:600418) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, considering around half the companies operating in China's Auto industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider Anhui Jianghuai Automobile GroupLtd as an solid investment opportunity with its 0.8x 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 limited.

See our latest analysis for Anhui Jianghuai Automobile GroupLtd

How Anhui Jianghuai Automobile GroupLtd Has Been Performing

Anhui Jianghuai Automobile GroupLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anhui Jianghuai Automobile GroupLtd.

Do Revenue Forecasts Match The Low P/S Ratio?

Anhui Jianghuai Automobile GroupLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 3.0% as estimated by the four analysts watching the company. With the industry predicted to deliver 63% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Anhui Jianghuai Automobile GroupLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Anhui Jianghuai Automobile GroupLtd's P/S Mean For Investors?

Anhui Jianghuai Automobile GroupLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Anhui Jianghuai Automobile GroupLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Anhui Jianghuai Automobile GroupLtd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.