Ningbo Changhong Polymer Scientific and Technical Inc.'s (SHSE:605008) P/S Is On The Mark

Ningbo Changhong Polymer Scientific and Technical Inc.'s (SHSE:605008) price-to-sales (or "P/S") ratio of 5.2x may look like a poor investment opportunity when you consider close to half the companies in the Chemicals industry in China have P/S ratios below 2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Ningbo Changhong Polymer Scientific and Technical

How Ningbo Changhong Polymer Scientific and Technical Has Been Performing

Ningbo Changhong Polymer Scientific and Technical 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 high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Ningbo Changhong Polymer Scientific and Technical will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Ningbo Changhong Polymer Scientific and Technical would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 6.8% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 30% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 83% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

In light of this, it's understandable that Ningbo Changhong Polymer Scientific and Technical'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.

What We Can Learn From Ningbo Changhong Polymer Scientific and Technical's P/S?

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.

We've established that Ningbo Changhong Polymer Scientific and Technical maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 4 warning signs for Ningbo Changhong Polymer Scientific and Technical you should be aware of, and 2 of them can't be ignored.

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.