Even With A 32% Surge, Cautious Investors Are Not Rewarding Tianyang New Materials (Shanghai) Technology Co., Ltd.'s (SHSE:603330) Performance Completely

Tianyang New Materials (Shanghai) Technology Co., Ltd. (SHSE:603330) shares have continued their recent momentum with a 32% gain in the last month alone. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, it's still not a stretch to say that Tianyang New Materials (Shanghai) Technology's price-to-sales (or "P/S") ratio of 2.9x right now seems quite "middle-of-the-road" compared to the Chemicals industry in China, where the median P/S ratio is around 2.6x. 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.

View our latest analysis for Tianyang New Materials (Shanghai) Technology

How Has Tianyang New Materials (Shanghai) Technology Performed Recently?

While the industry has experienced revenue growth lately, Tianyang New Materials (Shanghai) Technology's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Tianyang New Materials (Shanghai) Technology will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Tianyang New Materials (Shanghai) Technology's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. Still, the latest three year period has seen an excellent 34% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Tianyang New Materials (Shanghai) Technology's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Tianyang New Materials (Shanghai) Technology appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Looking at Tianyang New Materials (Shanghai) Technology's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. 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. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 1 warning sign for Tianyang New Materials (Shanghai) Technology that you need to take into consideration.

If these risks are making you reconsider your opinion on Tianyang New Materials (Shanghai) Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.