Those holding Nanjing OLO Home Furnishing Co.,Ltd (SHSE:603326) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Although its price has surged higher, when close to half the companies operating in China's Consumer Durables industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Nanjing OLO Home FurnishingLtd as an enticing stock to check out with its 1.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Nanjing OLO Home FurnishingLtd's P/S Mean For Shareholders?

Nanjing OLO Home FurnishingLtd's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Nanjing OLO Home FurnishingLtd will be hoping that this isn't the case.

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

Nanjing OLO Home FurnishingLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 23% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Nanjing OLO Home FurnishingLtd's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Nanjing OLO Home FurnishingLtd's P/S

Nanjing OLO Home FurnishingLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

A look at Nanjing OLO Home FurnishingLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Nanjing OLO Home FurnishingLtd has 2 warning signs we think you should be aware of.

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.