The Price Is Right For Fujian Kuncai Material Technology Co., Ltd. (SHSE:603826)

When you see that almost half of the companies in the Chemicals industry in China have price-to-sales ratios (or "P/S") below 2.2x, Fujian Kuncai Material Technology Co., Ltd. (SHSE:603826) looks to be giving off strong sell signals with its 24.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Fujian Kuncai Material Technology

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

Recent times haven't been great for Fujian Kuncai Material Technology as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Fujian Kuncai Material Technology will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Fujian Kuncai Material Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.4% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.5% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 360% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

In light of this, it's understandable that Fujian Kuncai Material Technology's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

Our look into Fujian Kuncai Material Technology shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Fujian Kuncai Material Technology has 1 warning sign we think you should be aware of.

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.