Zhongfu Shenying Carbon Fiber Co.,Ltd.'s (SHSE:688295) P/S Is On The Mark

Zhongfu Shenying Carbon Fiber Co.,Ltd.'s (SHSE:688295) price-to-sales (or "P/S") ratio of 10.2x 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 2.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Zhongfu Shenying Carbon FiberLtd

What Does Zhongfu Shenying Carbon FiberLtd's P/S Mean For Shareholders?

Zhongfu Shenying Carbon FiberLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Zhongfu Shenying Carbon FiberLtd will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Zhongfu Shenying Carbon FiberLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. Even so, admirably revenue has lifted 51% 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.

Turning to the outlook, the next year should generate growth of 32% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Zhongfu Shenying Carbon FiberLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Zhongfu Shenying Carbon FiberLtd's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Zhongfu Shenying Carbon FiberLtd 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Zhongfu Shenying Carbon FiberLtd (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Zhongfu Shenying Carbon FiberLtd, 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.