Why Investors Shouldn't Be Surprised By Xinjiang Zhongtai Chemical Co., Ltd.'s (SZSE:002092) Low P/S

With a price-to-sales (or "P/S") ratio of 0.3x Xinjiang Zhongtai Chemical Co., Ltd. (SZSE:002092) may be sending bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 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 Xinjiang Zhongtai Chemical

How Xinjiang Zhongtai Chemical Has Been Performing

Xinjiang Zhongtai Chemical could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

Want the full picture on analyst estimates for the company? Then our free report on Xinjiang Zhongtai Chemical will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Xinjiang Zhongtai Chemical?

Xinjiang Zhongtai Chemical'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.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 46% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 9.8% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

With this information, we can see why Xinjiang Zhongtai Chemical is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Xinjiang Zhongtai Chemical's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Xinjiang Zhongtai Chemical 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Xinjiang Zhongtai Chemical that you should be aware of.

If these risks are making you reconsider your opinion on Xinjiang Zhongtai Chemical, 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.