Kunming Chuan Jin Nuo Chemical Co., Ltd. (SZSE:300505) Stock Rockets 30% But Many Are Still Ignoring The Company

Kunming Chuan Jin Nuo Chemical Co., Ltd. (SZSE:300505) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Kunming Chuan Jin Nuo Chemical's P/S ratio of 1.5x, since the median price-to-sales (or "P/S") ratio for the Food industry in China is also close to 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Kunming Chuan Jin Nuo Chemical

What Does Kunming Chuan Jin Nuo Chemical's Recent Performance Look Like?

The recent revenue growth at Kunming Chuan Jin Nuo Chemical would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Kunming Chuan Jin Nuo Chemical 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 Kunming Chuan Jin Nuo Chemical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kunming Chuan Jin Nuo Chemical's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kunming Chuan Jin Nuo Chemical's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.8%. Pleasingly, revenue has also lifted 161% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Kunming Chuan Jin Nuo Chemical's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Kunming Chuan Jin Nuo Chemical's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We didn't quite envision Kunming Chuan Jin Nuo Chemical's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Kunming Chuan Jin Nuo Chemical (1 is significant!) that you need to be mindful of.

If you're unsure about the strength of Kunming Chuan Jin Nuo Chemical's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.