ZYF Lopsking Aluminum Co., Ltd. (SZSE:002333) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

ZYF Lopsking Aluminum Co., Ltd. (SZSE:002333) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given close to half the companies operating in China's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider ZYF Lopsking Aluminum as a stock to potentially avoid with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for ZYF Lopsking Aluminum

What Does ZYF Lopsking Aluminum's P/S Mean For Shareholders?

The revenue growth achieved at ZYF Lopsking Aluminum over the last year would be more than acceptable for most companies. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ZYF Lopsking Aluminum will help you shine a light on its historical performance.

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

ZYF Lopsking Aluminum's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.2%. This was backed up an excellent period prior to see revenue up by 162% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 15% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why ZYF Lopsking Aluminum's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

ZYF Lopsking Aluminum's P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of ZYF Lopsking Aluminum revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you settle on your opinion, we've discovered 2 warning signs for ZYF Lopsking Aluminum that 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.