Subdued Growth No Barrier To Ganfeng Lithium Group Co., Ltd. (SZSE:002460) With Shares Advancing 26%
Ganfeng Lithium Group Co., Ltd. (SZSE:002460) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.
Since its price has surged higher, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2x, you may consider Ganfeng Lithium Group as a stock probably not worth researching with its 2.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Ganfeng Lithium Group
What Does Ganfeng Lithium Group's Recent Performance Look Like?
Ganfeng Lithium Group 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. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Ganfeng Lithium Group will help you uncover what's on the horizon.Is There Enough Revenue Growth Forecasted For Ganfeng Lithium Group?
Ganfeng Lithium Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 46%. Still, the latest three year period has seen an excellent 239% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 16% each year over the next three years. With the industry predicted to deliver 23% growth each year, the company is positioned for a weaker revenue result.
In light of this, it's alarming that Ganfeng Lithium Group's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What Does Ganfeng Lithium Group's P/S Mean For Investors?
The large bounce in Ganfeng Lithium Group's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
It comes as a surprise to see Ganfeng Lithium Group trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Before you settle on your opinion, we've discovered 2 warning signs for Ganfeng Lithium Group (1 doesn't sit too well with us!) that you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
About SZSE:002460
Ganfeng Lithium Group
Manufactures and sells lithium products in Mainland China, rest of Asia, the European Union, North America, and internationally.
Reasonable growth potential average dividend payer.