Tongkun Group Co., Ltd. (SHSE:601233) Looks Inexpensive But Perhaps Not Attractive Enough

With a price-to-sales (or "P/S") ratio of 0.4x Tongkun Group Co., Ltd. (SHSE:601233) may be sending bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. 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 Tongkun Group

What Does Tongkun Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Tongkun Group has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic 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 Tongkun Group.

How Is Tongkun Group's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 37%. Pleasingly, revenue has also lifted 66% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

With this in consideration, its clear as to why Tongkun Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Tongkun Group's P/S Mean For Investors?

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 Tongkun Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Tongkun Group that we have uncovered.

If you're unsure about the strength of Tongkun Group'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.