Jiangsu Aoyang Health Industry Co.ltd.'s (SZSE:002172) Share Price Boosted 36% But Its Business Prospects Need A Lift Too

Jiangsu Aoyang Health Industry Co.ltd. (SZSE:002172) shares have continued their recent momentum with a 36% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 7.4% isn't as attractive.

In spite of the firm bounce in price, Jiangsu Aoyang Health Industryltd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.6x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.5x and even P/S higher than 5x are not unusual. 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 Jiangsu Aoyang Health Industryltd

What Does Jiangsu Aoyang Health Industryltd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Jiangsu Aoyang Health Industryltd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Jiangsu Aoyang Health Industryltd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Jiangsu Aoyang Health Industryltd's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Aoyang Health Industryltd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.4% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 6.0% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 25% 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 understandable that Jiangsu Aoyang Health Industryltd's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Despite Jiangsu Aoyang Health Industryltd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Jiangsu Aoyang Health Industryltd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. 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 moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Jiangsu Aoyang Health Industryltd is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Jiangsu Aoyang Health Industryltd's 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.