There's No Escaping China Resources and Environment Co.,Ltd.'s (SHSE:600217) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 2.2x China Resources and Environment Co.,Ltd. (SHSE:600217) is a stock worth checking out, seeing as almost half of all the Commercial Services companies in China have P/S ratios greater than 3.5x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for China Resources and EnvironmentLtd

What Does China Resources and EnvironmentLtd's P/S Mean For Shareholders?

The revenue growth achieved at China Resources and EnvironmentLtd over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on China Resources and EnvironmentLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Resources and EnvironmentLtd's earnings, revenue and cash flow.

How Is China Resources and EnvironmentLtd's Revenue Growth Trending?

China Resources and EnvironmentLtd'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.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. 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.

This is in contrast to the rest of the industry, which is expected to grow by 32% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why China Resources and EnvironmentLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On China Resources and EnvironmentLtd's P/S

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.

As we suspected, our examination of China Resources and EnvironmentLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

Before you settle on your opinion, we've discovered 5 warning signs for China Resources and EnvironmentLtd (2 don't sit too well with us!) that you should be aware of.

If you're unsure about the strength of China Resources and EnvironmentLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.