Guangdong Orient Zirconic Ind Sci & Tech Co.,Ltd's (SZSE:002167) Popularity With Investors Under Threat As Stock Sinks 26%

The Guangdong Orient Zirconic Ind Sci & Tech Co.,Ltd (SZSE:002167) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 20%.

Although its price has dipped substantially, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.4x, you may still consider Guangdong Orient Zirconic Ind Sci & TechLtd as a stock probably not worth researching with its 3.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Guangdong Orient Zirconic Ind Sci & TechLtd

How Has Guangdong Orient Zirconic Ind Sci & TechLtd Performed Recently?

Guangdong Orient Zirconic Ind Sci & TechLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Guangdong Orient Zirconic Ind Sci & TechLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Guangdong Orient Zirconic Ind Sci & TechLtd would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. Pleasingly, revenue has also lifted 30% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it worrying that Guangdong Orient Zirconic Ind Sci & TechLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Guangdong Orient Zirconic Ind Sci & TechLtd's P/S Mean For Investors?

There's still some elevation in Guangdong Orient Zirconic Ind Sci & TechLtd's P/S, even if the same can't be said for its share price recently. 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 Guangdong Orient Zirconic Ind Sci & TechLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Guangdong Orient Zirconic Ind Sci & TechLtd with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Guangdong Orient Zirconic Ind Sci & TechLtd'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.