There's No Escaping Anhui Jianghuai Automobile Group Corp.,Ltd.'s (SHSE:600418) Muted Revenues Despite A 25% Share Price Rise

Anhui Jianghuai Automobile Group Corp.,Ltd. (SHSE:600418) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

In spite of the firm bounce in price, when close to half the companies operating in China's Auto industry have price-to-sales ratios (or "P/S") above 1.9x, you may still consider Anhui Jianghuai Automobile GroupLtd as an enticing stock to check out with its 0.9x 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.

Check out our latest analysis for Anhui Jianghuai Automobile GroupLtd

What Does Anhui Jianghuai Automobile GroupLtd's Recent Performance Look Like?

Recent revenue growth for Anhui Jianghuai Automobile GroupLtd has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Anhui Jianghuai Automobile GroupLtd will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Anhui Jianghuai Automobile GroupLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 3.1% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% per annum during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 31% per annum, which is noticeably more attractive.

With this information, we can see why Anhui Jianghuai Automobile GroupLtd is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

The latest share price surge wasn't enough to lift Anhui Jianghuai Automobile GroupLtd's P/S close to the industry median. 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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Anhui Jianghuai Automobile GroupLtd is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Anhui Jianghuai Automobile GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com