Insufficient Growth At Zhuhai CosMX Battery Co., Ltd. (SHSE:688772) Hampers Share Price

With a price-to-sales (or "P/S") ratio of 1.3x Zhuhai CosMX Battery Co., Ltd. (SHSE:688772) may be sending bullish signals at the moment, given that almost half of all the Electrical companies in China have P/S ratios greater than 2x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Zhuhai CosMX Battery

What Does Zhuhai CosMX Battery's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Zhuhai CosMX Battery has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Zhuhai CosMX Battery's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Zhuhai CosMX Battery's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Zhuhai CosMX Battery'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 12%. This was backed up an excellent period prior to see revenue up by 47% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 24%, which is noticeably more attractive.

With this in consideration, its clear as to why Zhuhai CosMX Battery's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Zhuhai CosMX Battery's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Zhuhai CosMX Battery, and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.