Shan Dong Lu Bei Chemical Co.,Ltd's (SHSE:600727) Revenues Are Not Doing Enough For Some Investors

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Shan Dong Lu Bei Chemical Co.,Ltd (SHSE:600727) is a stock worth checking out, seeing as almost half of all the Chemicals companies in China have P/S ratios greater than 2.3x and even P/S higher than 5x aren't out of the ordinary. 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 Shan Dong Lu Bei ChemicalLtd

What Does Shan Dong Lu Bei ChemicalLtd's Recent Performance Look Like?

Shan Dong Lu Bei ChemicalLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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 Shan Dong Lu Bei ChemicalLtd's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Shan Dong Lu Bei ChemicalLtd?

The only time you'd be truly comfortable seeing a P/S as low as Shan Dong Lu Bei ChemicalLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Shan Dong Lu Bei ChemicalLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Shan Dong Lu Bei ChemicalLtd's P/S?

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.

In line with expectations, Shan Dong Lu Bei ChemicalLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Shan Dong Lu Bei ChemicalLtd (2 shouldn't be ignored!) that you should be aware of before investing here.

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.