The Market Lifts Shandong Fiberglass Group Co., Ltd (SHSE:605006) Shares 42% But It Can Do More

Shandong Fiberglass Group Co., Ltd (SHSE:605006) shares have continued their recent momentum with a 42% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 4.6% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think Shandong Fiberglass Group's price-to-sales (or "P/S") ratio of 2.1x is worth a mention when the median P/S in China's Chemicals industry is similar at about 2.4x. 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.

View our latest analysis for Shandong Fiberglass Group

What Does Shandong Fiberglass Group's P/S Mean For Shareholders?

Shandong Fiberglass Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shandong Fiberglass Group will help you uncover what's on the horizon.

How Is Shandong Fiberglass Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shandong Fiberglass Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 24% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 28% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Shandong Fiberglass Group's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Shandong Fiberglass Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Looking at Shandong Fiberglass Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Shandong Fiberglass Group is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.