Improved Revenues Required Before Sichuan Lutianhua Company Limited By Shares (SZSE:000912) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 1.1x Sichuan Lutianhua Company Limited By Shares (SZSE:000912) is a stock worth checking out, seeing as almost half of all the Chemicals companies in China have P/S ratios greater than 2x and even P/S higher than 5x 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 reduced P/S.

Check out our latest analysis for Sichuan Lutianhua Company Limited By Shares

How Has Sichuan Lutianhua Company Limited By Shares Performed Recently?

For instance, Sichuan Lutianhua Company Limited By Shares' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sichuan Lutianhua Company Limited By Shares will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Sichuan Lutianhua Company Limited By Shares?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Sichuan Lutianhua Company Limited By Shares' 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 31%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 23% shows it's noticeably less attractive.

In light of this, it's understandable that Sichuan Lutianhua Company Limited By Shares' 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 Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Sichuan Lutianhua Company Limited By Shares revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sichuan Lutianhua Company Limited By Shares that you need to be mindful of.

If you're unsure about the strength of Sichuan Lutianhua Company Limited By Shares' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.