There's Reason For Concern Over Anyuan Coal Industry Group Co., Ltd.'s (SHSE:600397) Massive 26% Price Jump

Anyuan Coal Industry Group Co., Ltd. (SHSE:600397) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 122% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Anyuan Coal Industry Group's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Oil and Gas industry in China, where the median P/S ratio is around 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Anyuan Coal Industry Group

What Does Anyuan Coal Industry Group's P/S Mean For Shareholders?

For instance, Anyuan Coal Industry Group's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in 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 Anyuan Coal Industry Group's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Anyuan Coal Industry Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Anyuan Coal Industry Group's to be considered reasonable.

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 16%. This means it has also seen a slide in revenue over the longer-term as revenue is down 45% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 6.0% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Anyuan Coal Industry Group's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Anyuan Coal Industry Group 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 find it unexpected that Anyuan Coal Industry Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 2 warning signs for Anyuan Coal Industry Group that we have uncovered.

If these risks are making you reconsider your opinion on Anyuan Coal Industry Group, 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.