Zhejiang Xinan Chemical Industrial Group Co.,Ltd's (SHSE:600596) Price Is Right But Growth Is Lacking

Zhejiang Xinan Chemical Industrial Group Co.,Ltd's (SHSE:600596) price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.3x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Zhejiang Xinan Chemical Industrial GroupLtd

What Does Zhejiang Xinan Chemical Industrial GroupLtd's P/S Mean For Shareholders?

Zhejiang Xinan Chemical Industrial GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Xinan Chemical Industrial GroupLtd.

How Is Zhejiang Xinan Chemical Industrial GroupLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Zhejiang Xinan Chemical Industrial GroupLtd's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. The last three years don't look nice either as the company has shrunk revenue by 14% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 8.2% during the coming year according to the dual analysts following the company. With the industry predicted to deliver 24% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Zhejiang Xinan Chemical Industrial GroupLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Zhejiang Xinan Chemical Industrial GroupLtd's P/S?

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.

As expected, our analysis of Zhejiang Xinan Chemical Industrial GroupLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Zhejiang Xinan Chemical Industrial GroupLtd (1 is a bit concerning!) that you need to be mindful 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.