Jiangxi Haiyuan Composites Technology Co.,Ltd. (SZSE:002529) Stock Rockets 42% As Investors Are Less Pessimistic Than Expected

Jiangxi Haiyuan Composites Technology Co.,Ltd. (SZSE:002529) shares have continued their recent momentum with a 42% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

After such a large jump in price, you could be forgiven for thinking Jiangxi Haiyuan Composites TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13.2x, considering almost half the companies in China's Machinery industry have P/S ratios below 3.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Jiangxi Haiyuan Composites TechnologyLtd

How Has Jiangxi Haiyuan Composites TechnologyLtd Performed Recently?

As an illustration, revenue has deteriorated at Jiangxi Haiyuan Composites TechnologyLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangxi Haiyuan Composites TechnologyLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Jiangxi Haiyuan Composites TechnologyLtd?

Jiangxi Haiyuan Composites TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 50%. The last three years don't look nice either as the company has shrunk revenue by 37% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

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

In light of this, it's alarming that Jiangxi Haiyuan Composites TechnologyLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Shares in Jiangxi Haiyuan Composites TechnologyLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our examination of Jiangxi Haiyuan Composites TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangxi Haiyuan Composites TechnologyLtd 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.