Jiangsu Sanfame Polyester Material Co.,Ltd.'s (SHSE:600370) Shares Bounce 25% But Its Business Still Trails The Industry
Jiangsu Sanfame Polyester Material Co.,Ltd. (SHSE:600370) shares have continued their recent momentum with a 25% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.
In spite of the firm bounce in price, Jiangsu Sanfame Polyester MaterialLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Luxury industry in China have P/S ratios greater than 1.5x and even P/S higher than 4x aren't out of the ordinary. 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 Jiangsu Sanfame Polyester MaterialLtd
What Does Jiangsu Sanfame Polyester MaterialLtd's P/S Mean For Shareholders?
We'd have to say that with no tangible growth over the last year, Jiangsu Sanfame Polyester MaterialLtd's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on Jiangsu Sanfame Polyester MaterialLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Jiangsu Sanfame Polyester MaterialLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is Jiangsu Sanfame Polyester MaterialLtd's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Sanfame Polyester MaterialLtd's to be considered reasonable.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 35% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.
Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
In light of this, it's understandable that Jiangsu Sanfame Polyester MaterialLtd's P/S sits below the majority of other companies. 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 Key Takeaway
Jiangsu Sanfame Polyester MaterialLtd's stock price has surged recently, but its but its P/S still remains modest. 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.
As we suspected, our examination of Jiangsu Sanfame Polyester MaterialLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example - Jiangsu Sanfame Polyester MaterialLtd has 2 warning signs we think you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SHSE:600370
Jiangsu Sanfame Polyester MaterialLtd
Jiangsu Sanfame Polyester Material Co.,Ltd.
Slightly overvalued with imperfect balance sheet.