Market Might Still Lack Some Conviction On Chengzhi Co., Ltd. (SZSE:000990) Even After 37% Share Price Boost

Chengzhi Co., Ltd. (SZSE:000990) shares have had a really impressive month, gaining 37% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Even after such a large jump in price, Chengzhi may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.2x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Chengzhi

What Does Chengzhi's P/S Mean For Shareholders?

Chengzhi hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. 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.

Keen to find out how analysts think Chengzhi's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Chengzhi's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.2%. This means it has also seen a slide in revenue over the longer-term as revenue is down 5.2% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be similar to the 21% growth forecast for the broader industry.

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

The Bottom Line On Chengzhi's P/S

The latest share price surge wasn't enough to lift Chengzhi's P/S close to the industry median. 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.

Our examination of Chengzhi's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Before you take the next step, you should know about the 1 warning sign for Chengzhi that we have uncovered.

If you're unsure about the strength of Chengzhi'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.