Revenues Not Telling The Story For Shanghai Sunglow Packaging Technology Co.,Ltd (SHSE:603499) After Shares Rise 49%

Shanghai Sunglow Packaging Technology Co.,Ltd (SHSE:603499) shares have had a really impressive month, gaining 49% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 94%.

After such a large jump in price, when almost half of the companies in China's Packaging industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Shanghai Sunglow Packaging TechnologyLtd as a stock not worth researching with its 5.4x 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.

Check out our latest analysis for Shanghai Sunglow Packaging TechnologyLtd

How Has Shanghai Sunglow Packaging TechnologyLtd Performed Recently?

The recent revenue growth at Shanghai Sunglow Packaging TechnologyLtd would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shanghai Sunglow Packaging TechnologyLtd will help you shine a light on its historical performance.

How Is Shanghai Sunglow Packaging TechnologyLtd's Revenue Growth Trending?

Shanghai Sunglow Packaging TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 3.9% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Shanghai Sunglow Packaging TechnologyLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Shanghai Sunglow Packaging TechnologyLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

The fact that Shanghai Sunglow Packaging TechnologyLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Shanghai Sunglow Packaging TechnologyLtd (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Shanghai Sunglow Packaging TechnologyLtd'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.