Improved Revenues Required Before Qingdao Kingking Applied Chemistry Co., Ltd. (SZSE:002094) Stock's 37% Jump Looks Justified

Despite an already strong run, Qingdao Kingking Applied Chemistry Co., Ltd. (SZSE:002094) shares have been powering on, with a gain of 37% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

In spite of the firm bounce in price, Qingdao Kingking Applied Chemistry may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.2x, considering almost half of all companies in the Personal Products industry in China have P/S ratios greater than 3x 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.

Check out our latest analysis for Qingdao Kingking Applied Chemistry

How Has Qingdao Kingking Applied Chemistry Performed Recently?

For example, consider that Qingdao Kingking Applied Chemistry'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. Those who are bullish on Qingdao Kingking Applied Chemistry will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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 Qingdao Kingking Applied Chemistry's earnings, revenue and cash flow.

How Is Qingdao Kingking Applied Chemistry's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Qingdao Kingking Applied Chemistry's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 55% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's an unpleasant look.

In light of this, it's understandable that Qingdao Kingking Applied Chemistry's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Qingdao Kingking Applied Chemistry's P/S

Despite Qingdao Kingking Applied Chemistry's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Qingdao Kingking Applied Chemistry revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Qingdao Kingking Applied Chemistry you should be aware of.

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.