Jiangxi Black Cat Carbon Black Inc.,Ltd (SZSE:002068) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Jiangxi Black Cat Carbon Black Inc.,Ltd (SZSE:002068) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Although its price has surged higher, Jiangxi Black Cat Carbon BlackLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, 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. 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 Jiangxi Black Cat Carbon BlackLtd

How Has Jiangxi Black Cat Carbon BlackLtd Performed Recently?

With revenue growth that's superior to most other companies of late, Jiangxi Black Cat Carbon BlackLtd has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Jiangxi Black Cat Carbon BlackLtd'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.1% last year. Revenue has also lifted 28% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 17% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

In light of this, it's understandable that Jiangxi Black Cat Carbon BlackLtd'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 Jiangxi Black Cat Carbon BlackLtd's P/S

The latest share price surge wasn't enough to lift Jiangxi Black Cat Carbon BlackLtd'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.

We've established that Jiangxi Black Cat Carbon BlackLtd 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jiangxi Black Cat Carbon BlackLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.