Investors Aren't Buying Jiangsu Eastern Shenghong Co.,Ltd.'s (SZSE:000301) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.4x Jiangsu Eastern Shenghong Co.,Ltd. (SZSE:000301) is a stock worth checking out, seeing as almost half of all the Chemicals companies in China have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jiangsu Eastern ShenghongLtd

What Does Jiangsu Eastern ShenghongLtd's Recent Performance Look Like?

Recent times have been advantageous for Jiangsu Eastern ShenghongLtd as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

Want the full picture on analyst estimates for the company? Then our free report on Jiangsu Eastern ShenghongLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Jiangsu Eastern ShenghongLtd?

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

Retrospectively, the last year delivered an exceptional 85% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 264% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 4.5% over the next year. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

With this information, we can see why Jiangsu Eastern ShenghongLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Jiangsu Eastern ShenghongLtd's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Jiangsu Eastern ShenghongLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Jiangsu Eastern ShenghongLtd (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of Jiangsu Eastern ShenghongLtd'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.

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