Little Excitement Around Rongsheng Petrochemical Co., Ltd.'s (SZSE:002493) Revenues

With a price-to-sales (or "P/S") ratio of 0.3x Rongsheng Petrochemical Co., Ltd. (SZSE:002493) may be sending very bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Rongsheng Petrochemical

How Has Rongsheng Petrochemical Performed Recently?

Rongsheng Petrochemical certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Rongsheng Petrochemical's Revenue Growth Trending?

In order to justify its P/S ratio, Rongsheng Petrochemical would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.3%. Pleasingly, revenue has also lifted 108% 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.

Turning to the outlook, the next year should generate growth of 10.0% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

With this information, we can see why Rongsheng Petrochemical is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Rongsheng Petrochemical maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for Rongsheng Petrochemical you should be aware of, and 1 of them can't be ignored.

If you're unsure about the strength of Rongsheng Petrochemical's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.