Xinxiang Chemical Fiber Co., Ltd. (SZSE:000949) Shares Fly 43% But Investors Aren't Buying For Growth

Xinxiang Chemical Fiber Co., Ltd. (SZSE:000949) shareholders would be excited to see that the share price has had a great month, posting a 43% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 45%.

Even after such a large jump in price, Xinxiang Chemical Fiber may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.4x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Xinxiang Chemical Fiber

What Does Xinxiang Chemical Fiber's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Xinxiang Chemical Fiber has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xinxiang Chemical Fiber.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Xinxiang Chemical Fiber would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.4%. Still, lamentably revenue has fallen 7.1% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 10% per annum during the coming three years according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 27% per year, which is noticeably more attractive.

In light of this, it's understandable that Xinxiang Chemical Fiber's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Xinxiang Chemical Fiber's P/S

The latest share price surge wasn't enough to lift Xinxiang Chemical Fiber's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Xinxiang Chemical Fiber's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Xinxiang Chemical Fiber (1 is a bit unpleasant) 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.