Getting In Cheap On AnHui Jinchun Nonwoven Co., Ltd. (SZSE:300877) Is Unlikely

There wouldn't be many who think AnHui Jinchun Nonwoven Co., Ltd.'s (SZSE:300877) price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S for the Luxury industry in China is very similar. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for AnHui Jinchun Nonwoven

What Does AnHui Jinchun Nonwoven's Recent Performance Look Like?

AnHui Jinchun Nonwoven certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on AnHui Jinchun Nonwoven.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like AnHui Jinchun Nonwoven's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Still, lamentably revenue has fallen 18% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 4.4% over the next year. With the industry predicted to deliver 18% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that AnHui Jinchun Nonwoven's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From AnHui Jinchun Nonwoven'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.

When you consider that AnHui Jinchun Nonwoven's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for AnHui Jinchun Nonwoven with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.