Jiangsu HSC New Energy Materials Co.,LTD.'s (SHSE:688353) Price In Tune With Revenues

Jiangsu HSC New Energy Materials Co.,LTD.'s (SHSE:688353) price-to-sales (or "P/S") ratio of 6.8x 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 Jiangsu HSC New Energy MaterialsLTD

How Has Jiangsu HSC New Energy MaterialsLTD Performed Recently?

While the industry has experienced revenue growth lately, Jiangsu HSC New Energy MaterialsLTD's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu HSC New Energy MaterialsLTD.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Jiangsu HSC New Energy MaterialsLTD's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 39%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 18% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 60% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 21% growth forecast for the broader industry.

With this information, we can see why Jiangsu HSC New Energy MaterialsLTD is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Jiangsu HSC New Energy MaterialsLTD's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Jiangsu HSC New Energy MaterialsLTD has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Jiangsu HSC New Energy MaterialsLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.