Delixi New Energy Technology Co., Ltd.'s (SHSE:603032) Shares Climb 25% But Its Business Is Yet to Catch Up

Despite an already strong run, Delixi New Energy Technology Co., Ltd. (SHSE:603032) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Delixi New Energy Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 12.5x, considering almost half the companies in China's Machinery industry have P/S ratios below 2.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Delixi New Energy Technology

How Delixi New Energy Technology Has Been Performing

While the industry has experienced revenue growth lately, Delixi New Energy Technology's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Delixi New Energy Technology.

How Is Delixi New Energy Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Delixi New Energy Technology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 58% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 190% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 22% as estimated by the lone analyst watching the company. With the industry predicted to deliver 23% growth , the company is positioned for a comparable revenue result.

In light of this, it's curious that Delixi New Energy Technology's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Delixi New Energy Technology's P/S Mean For Investors?

Delixi New Energy Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Analysts are forecasting Delixi New Energy Technology's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Delixi New Energy Technology you should know about.

If these risks are making you reconsider your opinion on Delixi New Energy Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.