Investors Still Aren't Entirely Convinced By Aofu Environmental Technology Co.,Ltd.'s (SHSE:688021) Revenues Despite 51% Price Jump

Aofu Environmental Technology Co.,Ltd. (SHSE:688021) shareholders would be excited to see that the share price has had a great month, posting a 51% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 53% share price drop in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Aofu Environmental TechnologyLtd's P/S ratio of 3.1x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Aofu Environmental TechnologyLtd

How Aofu Environmental TechnologyLtd Has Been Performing

While the industry has experienced revenue growth lately, Aofu Environmental TechnologyLtd's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aofu Environmental TechnologyLtd.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Aofu Environmental TechnologyLtd's is when the company's growth is tracking the industry closely.

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 4.6%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 78% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Aofu Environmental TechnologyLtd is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Aofu Environmental TechnologyLtd's P/S?

Aofu Environmental TechnologyLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Aofu Environmental TechnologyLtd currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Aofu Environmental TechnologyLtd with six simple checks will allow you to discover any risks that could be an issue.

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

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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.