You may think that with a price-to-sales (or "P/S") ratio of 0.8x An Hui Wenergy Company Limited (SZSE:000543) is a stock worth checking out, seeing as almost half of all the Renewable Energy companies in China have P/S ratios greater than 2.2x 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.

How Has An Hui Wenergy Performed Recently?

While the industry has experienced revenue growth lately, An Hui Wenergy's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For An Hui Wenergy?

The only time you'd be truly comfortable seeing a P/S as low as An Hui Wenergy's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.3%. Still, the latest three year period has seen an excellent 55% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 8.0% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.0% per year, which is not materially different.

In light of this, it's peculiar that An Hui Wenergy's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does An Hui Wenergy's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It looks to us like the P/S figures for An Hui Wenergy remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for An Hui Wenergy that you need to take into consideration.

If you're unsure about the strength of An Hui Wenergy'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.