Even With A 26% Surge, Cautious Investors Are Not Rewarding Guangxi Fenglin Wood Industry Group Co.,Ltd's (SHSE:601996) Performance Completely

Guangxi Fenglin Wood Industry Group Co.,Ltd (SHSE:601996) shares have continued their recent momentum with a 26% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.4% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Guangxi Fenglin Wood Industry GroupLtd's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Forestry industry in China, where the median P/S ratio is around 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Guangxi Fenglin Wood Industry GroupLtd

How Has Guangxi Fenglin Wood Industry GroupLtd Performed Recently?

Guangxi Fenglin Wood Industry GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Guangxi Fenglin Wood Industry GroupLtd will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Guangxi Fenglin Wood Industry GroupLtd?

The only time you'd be comfortable seeing a P/S like Guangxi Fenglin Wood Industry GroupLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 16%, which is noticeably less attractive.

With this information, we find it interesting that Guangxi Fenglin Wood Industry GroupLtd is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Guangxi Fenglin Wood Industry GroupLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Guangxi Fenglin Wood Industry GroupLtd's P/S is back within range of the industry median. 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.

Despite enticing revenue growth figures that outpace the industry, Guangxi Fenglin Wood Industry GroupLtd's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware Guangxi Fenglin Wood Industry GroupLtd is showing 1 warning sign in our investment analysis, you should know about.

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.