Revenues Tell The Story For Yunnan Lincang Xinyuan Germanium Industry Co.,LTD (SZSE:002428) As Its Stock Soars 26%

Those holding Yunnan Lincang Xinyuan Germanium Industry Co.,LTD (SZSE:002428) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, you could be forgiven for thinking Yunnan Lincang Xinyuan Germanium IndustryLTD is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13x, considering almost half the companies in China's Metals and Mining industry have P/S ratios below 1.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Yunnan Lincang Xinyuan Germanium IndustryLTD

What Does Yunnan Lincang Xinyuan Germanium IndustryLTD's P/S Mean For Shareholders?

Yunnan Lincang Xinyuan Germanium IndustryLTD 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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

Yunnan Lincang Xinyuan Germanium IndustryLTD's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next year should generate growth of 25% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Yunnan Lincang Xinyuan Germanium IndustryLTD's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Yunnan Lincang Xinyuan Germanium IndustryLTD's P/S Mean For Investors?

Shares in Yunnan Lincang Xinyuan Germanium IndustryLTD have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Yunnan Lincang Xinyuan Germanium IndustryLTD's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yunnan Lincang Xinyuan Germanium IndustryLTD with six simple checks.

If you're unsure about the strength of Yunnan Lincang Xinyuan Germanium IndustryLTD'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.