Tangshan Sunfar Silicon Industries Co.,Ltd.'s (SHSE:603938) Shareholders Might Be Looking For Exit

There wouldn't be many who think Tangshan Sunfar Silicon Industries Co.,Ltd.'s (SHSE:603938) price-to-sales (or "P/S") ratio of 2.7x is worth a mention when the median P/S for the Chemicals industry in China is similar at about 2.5x. 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.

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See our latest analysis for Tangshan Sunfar Silicon IndustriesLtd

What Does Tangshan Sunfar Silicon IndustriesLtd's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Tangshan Sunfar Silicon IndustriesLtd'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.

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How Is Tangshan Sunfar Silicon IndustriesLtd's Revenue Growth Trending?

Tangshan Sunfar Silicon IndustriesLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. Still, the latest three year period has seen an excellent 31% 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 19% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 24%, which is noticeably more attractive.

With this information, we find it interesting that Tangshan Sunfar Silicon IndustriesLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Tangshan Sunfar Silicon IndustriesLtd's P/S?

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.

Given that Tangshan Sunfar Silicon IndustriesLtd's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 1 warning sign for Tangshan Sunfar Silicon IndustriesLtd that you need to take into consideration.

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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.