Jiangsu Eastern Shenghong Co.,Ltd.'s (SZSE:000301) Price Is Right But Growth Is Lacking

With a price-to-sales (or "P/S") ratio of 0.4x Jiangsu Eastern Shenghong Co.,Ltd. (SZSE:000301) may be sending bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Jiangsu Eastern ShenghongLtd

How Has Jiangsu Eastern ShenghongLtd Performed Recently?

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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Eastern ShenghongLtd.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Jiangsu Eastern ShenghongLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The latest three year period has also seen an excellent 149% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the four analysts following the company. With the industry predicted to deliver 24% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Jiangsu Eastern ShenghongLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From 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.

We've established that Jiangsu Eastern ShenghongLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Jiangsu Eastern ShenghongLtd that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.