Zhejiang Xinan Chemical Industrial Group Co.,Ltd's (SHSE:600596) Share Price Is Matching Sentiment Around Its Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.8x Zhejiang Xinan Chemical Industrial Group Co.,Ltd (SHSE:600596) is a stock worth checking out, seeing as almost half of all the Chemicals companies in China have P/S ratios greater than 2.2x 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.

View our latest analysis for Zhejiang Xinan Chemical Industrial GroupLtd

How Has Zhejiang Xinan Chemical Industrial GroupLtd Performed Recently?

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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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.

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 14%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 2.6% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 21% growth forecast for the broader industry.

With this information, we can see why Zhejiang Xinan Chemical Industrial GroupLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Zhejiang Xinan Chemical Industrial GroupLtd's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Zhejiang Xinan Chemical Industrial GroupLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Zhejiang Xinan Chemical Industrial GroupLtd, and understanding these should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.