JiaoZuo WanFang Aluminum Manufacturing Co., Ltd's (SZSE:000612) 29% Share Price Surge Not Quite Adding Up

JiaoZuo WanFang Aluminum Manufacturing Co., Ltd (SZSE:000612) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 37%.

Although its price has surged higher, there still wouldn't be many who think JiaoZuo WanFang Aluminum Manufacturing's price-to-sales (or "P/S") ratio of 1.3x is worth a mention when it essentially matches the median P/S in China's Metals and Mining industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for JiaoZuo WanFang Aluminum Manufacturing

What Does JiaoZuo WanFang Aluminum Manufacturing's P/S Mean For Shareholders?

For example, consider that JiaoZuo WanFang Aluminum Manufacturing's financial performance has been pretty ordinary lately as revenue growth is non-existent. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. 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 not quite in favour.

Although there are no analyst estimates available for JiaoZuo WanFang Aluminum Manufacturing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like JiaoZuo WanFang Aluminum Manufacturing's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 11% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.

In light of this, it's curious that JiaoZuo WanFang Aluminum Manufacturing's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does JiaoZuo WanFang Aluminum Manufacturing's P/S Mean For Investors?

Its shares have lifted substantially and now JiaoZuo WanFang Aluminum Manufacturing's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of JiaoZuo WanFang Aluminum Manufacturing revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for JiaoZuo WanFang Aluminum Manufacturing that you should be aware of.

If these risks are making you reconsider your opinion on JiaoZuo WanFang Aluminum Manufacturing, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.