Even With A 25% Surge, Cautious Investors Are Not Rewarding Shenzhen SunXing Light Alloys Materials Co.,Ltd.'s (SHSE:603978) Performance Completely

Despite an already strong run, Shenzhen SunXing Light Alloys Materials Co.,Ltd. (SHSE:603978) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Shenzhen SunXing Light Alloys MaterialsLtd's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.2x. 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.

See our latest analysis for Shenzhen SunXing Light Alloys MaterialsLtd

What Does Shenzhen SunXing Light Alloys MaterialsLtd's P/S Mean For Shareholders?

Shenzhen SunXing Light Alloys MaterialsLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen SunXing Light Alloys MaterialsLtd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Shenzhen SunXing Light Alloys MaterialsLtd?

In order to justify its P/S ratio, Shenzhen SunXing Light Alloys MaterialsLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 74% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

In light of this, it's curious that Shenzhen SunXing Light Alloys MaterialsLtd's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Its shares have lifted substantially and now Shenzhen SunXing Light Alloys MaterialsLtd's P/S is back within range of the industry median. 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.

To our surprise, Shenzhen SunXing Light Alloys MaterialsLtd revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Having said that, be aware Shenzhen SunXing Light Alloys MaterialsLtd is showing 4 warning signs in our investment analysis, and 3 of those are a bit concerning.

If these risks are making you reconsider your opinion on Shenzhen SunXing Light Alloys MaterialsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.