Earth-Panda Advanced Magnetic Material Co.,Ltd. (SHSE:688077) Shares Fly 42% But Investors Aren't Buying For Growth

The Earth-Panda Advanced Magnetic Material Co.,Ltd. (SHSE:688077) share price has done very well over the last month, posting an excellent gain of 42%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 17% over that time.

Even after such a large jump in price, Earth-Panda Advanced Magnetic MaterialLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x 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.

See our latest analysis for Earth-Panda Advanced Magnetic MaterialLtd

How Earth-Panda Advanced Magnetic MaterialLtd Has Been Performing

For example, consider that Earth-Panda Advanced Magnetic MaterialLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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 Earth-Panda Advanced Magnetic MaterialLtd's earnings, revenue and cash flow.

How Is Earth-Panda Advanced Magnetic MaterialLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Earth-Panda Advanced Magnetic MaterialLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Earth-Panda Advanced Magnetic MaterialLtd is trading at a P/S lower than the industry. 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.

The Bottom Line On Earth-Panda Advanced Magnetic MaterialLtd's P/S

Despite Earth-Panda Advanced Magnetic MaterialLtd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Earth-Panda Advanced Magnetic MaterialLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Earth-Panda Advanced Magnetic MaterialLtd (3 are potentially serious) 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.