Qingdao Doublestar Co.,Ltd (SZSE:000599) Surges 30% Yet Its Low P/S Is No Reason For Excitement

Qingdao Doublestar Co.,Ltd (SZSE:000599) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

Although its price has surged higher, it would still be understandable if you think Qingdao DoublestarLtd is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in China's Auto Components industry have P/S ratios above 2.3x. 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 Qingdao DoublestarLtd

What Does Qingdao DoublestarLtd's Recent Performance Look Like?

The revenue growth achieved at Qingdao DoublestarLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you 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.

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 Qingdao DoublestarLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Qingdao DoublestarLtd's P/S falls short of the mark set by its industry peers. 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.

What We Can Learn From Qingdao DoublestarLtd's P/S?

The latest share price surge wasn't enough to lift Qingdao DoublestarLtd's P/S close to the industry median. 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.

In line with expectations, Qingdao DoublestarLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Qingdao DoublestarLtd that 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.