Eternal Asia Supply Chain Management Ltd. (SZSE:002183) Shares Fly 53% But Investors Aren't Buying For Growth

The Eternal Asia Supply Chain Management Ltd. (SZSE:002183) share price has done very well over the last month, posting an excellent gain of 53%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.1% over the last year.

In spite of the firm bounce in price, Eternal Asia Supply Chain Management may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Commercial Services industry in China have P/S ratios greater than 2.7x and even P/S higher than 6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Eternal Asia Supply Chain Management

What Does Eternal Asia Supply Chain Management's P/S Mean For Shareholders?

For instance, Eternal Asia Supply Chain Management's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Eternal Asia Supply Chain Management's earnings, revenue and cash flow.

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

The only time you'd be truly comfortable seeing a P/S as depressed as Eternal Asia Supply Chain Management's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 4.0% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 23% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Eternal Asia Supply Chain Management's P/S falls short of the mark set by its industry peers. 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.

What Does Eternal Asia Supply Chain Management's P/S Mean For Investors?

Even after such a strong price move, Eternal Asia Supply Chain Management's P/S still trails the rest of 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.

In line with expectations, Eternal Asia Supply Chain Management maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Eternal Asia Supply Chain Management (including 1 which is significant).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.