Further Upside For Polyrocks Chemical Co.,LTD (SHSE:688669) Shares Could Introduce Price Risks After 37% Bounce

Polyrocks Chemical Co.,LTD (SHSE:688669) shareholders have had their patience rewarded with a 37% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Although its price has surged higher, Polyrocks ChemicalLTD's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Polyrocks ChemicalLTD

How Has Polyrocks ChemicalLTD Performed Recently?

Revenue has risen firmly for Polyrocks ChemicalLTD recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Polyrocks ChemicalLTD will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Polyrocks ChemicalLTD's earnings, revenue and cash flow.

How Is Polyrocks ChemicalLTD's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Polyrocks ChemicalLTD's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.9% last year. The latest three year period has also seen an excellent 70% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 21% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Polyrocks ChemicalLTD's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Polyrocks ChemicalLTD's P/S?

Polyrocks ChemicalLTD's stock price has surged recently, but its but its P/S still remains modest. 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.

The fact that Polyrocks ChemicalLTD currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

Having said that, be aware Polyrocks ChemicalLTD is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.