There Is A Reason Spic Yuanda Environmental-Protection Co.,Ltd.'s (SHSE:600292) Price Is Undemanding

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Spic Yuanda Environmental-Protection Co.,Ltd. (SHSE:600292) is a stock worth checking out, seeing as almost half of all the Commercial Services companies in China have P/S ratios greater than 2.5x and even P/S higher than 5x 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.

See our latest analysis for Spic Yuanda Environmental-ProtectionLtd

What Does Spic Yuanda Environmental-ProtectionLtd's P/S Mean For Shareholders?

The recent revenue growth at Spic Yuanda Environmental-ProtectionLtd would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Spic Yuanda Environmental-ProtectionLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Spic Yuanda Environmental-ProtectionLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Spic Yuanda Environmental-ProtectionLtd would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.1%. The solid recent performance means it was also able to grow revenue by 7.5% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Spic Yuanda Environmental-ProtectionLtd's P/S sits below the majority of other companies. 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.

The Bottom Line On Spic Yuanda Environmental-ProtectionLtd's P/S

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.

As we suspected, our examination of Spic Yuanda Environmental-ProtectionLtd 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.

Plus, you should also learn about this 1 warning sign we've spotted with Spic Yuanda Environmental-ProtectionLtd.

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.