Jiangsu Lopal Tech. Co., Ltd.'s (SHSE:603906) Shares Leap 27% Yet They're Still Not Telling The Full Story

Jiangsu Lopal Tech. Co., Ltd. (SHSE:603906) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Although its price has surged higher, Jiangsu Lopal Tech's price-to-sales (or "P/S") ratio of 1x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.4x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Jiangsu Lopal Tech

How Jiangsu Lopal Tech Has Been Performing

Jiangsu Lopal Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Lopal Tech.

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

In order to justify its P/S ratio, Jiangsu Lopal Tech would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. Even so, admirably revenue has lifted 176% in aggregate from three years ago, notwithstanding the last 12 months. 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 43% during the coming year according to the two analysts following the company. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Jiangsu Lopal Tech is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Jiangsu Lopal Tech's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Jiangsu Lopal Tech's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Lopal Tech (1 can't be ignored) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.