Polyrocks Chemical Co.,LTD (SHSE:688669) Surges 28% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Polyrocks Chemical Co.,LTD (SHSE:688669) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 17% over that time.

Although its price has surged higher, Polyrocks ChemicalLTD's price-to-sales (or "P/S") ratio of 0.5x 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 2.4x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Polyrocks ChemicalLTD

How Polyrocks ChemicalLTD Has Been Performing

Polyrocks ChemicalLTD has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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.

Is There Any Revenue Growth Forecasted For Polyrocks ChemicalLTD?

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.

If we review the last year of revenue growth, the company posted a worthy increase of 2.8%. The latest three year period has also seen an excellent 56% 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.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Polyrocks ChemicalLTD's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Polyrocks ChemicalLTD's P/S

The latest share price surge wasn't enough to lift Polyrocks ChemicalLTD's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Polyrocks ChemicalLTD confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Polyrocks ChemicalLTD that you should be aware 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.