Not Many Are Piling Into Sichuan Xinjinlu Group Co., Ltd. (SZSE:000510) Stock Yet As It Plummets 27%

Sichuan Xinjinlu Group Co., Ltd. (SZSE:000510) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Following the heavy fall in price, given about half the companies operating in China's Chemicals industry have price-to-sales ratios (or "P/S") above 2.2x, you may consider Sichuan Xinjinlu Group as an attractive investment with its 1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Sichuan Xinjinlu Group

How Has Sichuan Xinjinlu Group Performed Recently?

While the industry has experienced revenue growth lately, Sichuan Xinjinlu Group's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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 Sichuan Xinjinlu Group will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Sichuan Xinjinlu Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. The last three years don't look nice either as the company has shrunk revenue by 21% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

In light of this, it's peculiar that Sichuan Xinjinlu Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Sichuan Xinjinlu Group's P/S Mean For Investors?

Sichuan Xinjinlu Group's recently weak share price has pulled its P/S back below other Chemicals companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Sichuan Xinjinlu Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 1 warning sign for Sichuan Xinjinlu Group that you should be aware 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.

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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.