Hunan Kaimeite Gases Co., Ltd. (SZSE:002549) Stocks Pounded By 25% But Not Lagging Industry On Growth Or Pricing

The Hunan Kaimeite Gases Co., Ltd. (SZSE:002549) share price has fared very poorly over the last month, falling by a substantial 25%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Even after such a large drop in price, given around half the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2x, you may still consider Hunan Kaimeite Gases as a stock to avoid entirely with its 6.3x P/S ratio. 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 Hunan Kaimeite Gases

What Does Hunan Kaimeite Gases' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Hunan Kaimeite Gases' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Hunan Kaimeite Gases would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 40% as estimated by the only analyst watching the company. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Hunan Kaimeite Gases' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Hunan Kaimeite Gases' P/S?

Even after such a strong price drop, Hunan Kaimeite Gases' P/S still exceeds the industry median significantly. 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.

Our look into Hunan Kaimeite Gases shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Hunan Kaimeite Gases you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.