Risks To Shareholder Returns Are Elevated At These Prices For Crown Advanced Material Co.,Ltd. (SHSE:688560)

With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Chemicals industry in China, you could be forgiven for feeling indifferent about Crown Advanced Material Co.,Ltd.'s (SHSE:688560) P/S ratio of 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Crown Advanced MaterialLtd

What Does Crown Advanced MaterialLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Crown Advanced MaterialLtd over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Crown Advanced MaterialLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Crown Advanced MaterialLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Crown Advanced MaterialLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% 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.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Crown Advanced MaterialLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Crown Advanced MaterialLtd's P/S

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.

We've established that Crown Advanced MaterialLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Crown Advanced MaterialLtd that you need to be mindful of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com