With Grace Fabric Technology Co.,Ltd. (SHSE:603256) It Looks Like You'll Get What You Pay For

When you see that almost half of the companies in the Chemicals industry in China have price-to-sales ratios (or "P/S") below 2.3x, Grace Fabric Technology Co.,Ltd. (SHSE:603256) looks to be giving off strong sell signals with its 10.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Grace Fabric TechnologyLtd

How Grace Fabric TechnologyLtd Has Been Performing

Grace Fabric TechnologyLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Grace Fabric TechnologyLtd will help you uncover what's on the horizon.

How Is Grace Fabric TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Grace Fabric TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 30% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Grace Fabric TechnologyLtd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Grace Fabric TechnologyLtd shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Grace Fabric TechnologyLtd you should know about.

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.