Fujian Kuncai Material Technology Co., Ltd. (SHSE:603826) Not Lagging Industry On Growth Or Pricing

When close to half the companies in the Chemicals industry in China have price-to-sales ratios (or "P/S") below 2.4x, you may consider Fujian Kuncai Material Technology Co., Ltd. (SHSE:603826) as a stock to avoid entirely with its 13.5x 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.

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Check out our latest analysis for Fujian Kuncai Material Technology

What Does Fujian Kuncai Material Technology's Recent Performance Look Like?

Recent times have been advantageous for Fujian Kuncai Material Technology as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Fujian Kuncai Material Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Fujian Kuncai Material Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Fujian Kuncai Material Technology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Revenue has also lifted 9.7% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 100% each year as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 20% each year, which is noticeably less attractive.

With this information, we can see why Fujian Kuncai Material Technology is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

We've established that Fujian Kuncai Material Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Fujian Kuncai Material Technology (1 is concerning) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.