Xinyu Iron & Steel Co., Ltd's (SHSE:600782) Shares Not Telling The Full Story

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Xinyu Iron & Steel Co., Ltd (SHSE:600782) is a stock worth checking out, seeing as almost half of all the Metals and Mining companies in China have P/S ratios greater than 1.3x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Xinyu Iron & Steel

What Does Xinyu Iron & Steel's Recent Performance Look Like?

Xinyu Iron & Steel 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xinyu Iron & Steel.

How Is Xinyu Iron & Steel's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Xinyu Iron & Steel's to be considered reasonable.

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 53%. As a result, revenue from three years ago have also fallen 62% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 140% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this information, we find it odd that Xinyu Iron & Steel is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To us, it seems Xinyu Iron & Steel currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Xinyu Iron & Steel that you should be aware of.

If you're unsure about the strength of Xinyu Iron & Steel'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.