Lacklustre Performance Is Driving Rongsheng Petrochemical Co., Ltd.'s (SZSE:002493) Low P/S

Rongsheng Petrochemical Co., Ltd.'s (SZSE:002493) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.1x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Rongsheng Petrochemical

What Does Rongsheng Petrochemical's P/S Mean For Shareholders?

Recent times haven't been great for Rongsheng Petrochemical as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Rongsheng Petrochemical's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Rongsheng Petrochemical's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. Pleasingly, revenue has also lifted 202% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.5% over the next year. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

With this in consideration, its clear as to why Rongsheng Petrochemical's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 expected, our analysis of Rongsheng Petrochemical's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Rongsheng Petrochemical is showing 2 warning signs in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.