Hunan Kaimeite Gases Co., Ltd.'s (SZSE:002549) 31% Jump Shows Its Popularity With Investors

Hunan Kaimeite Gases Co., Ltd. (SZSE:002549) shareholders have had their patience rewarded with a 31% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 9.4% isn't as impressive.

After such a large jump in price, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Hunan Kaimeite Gases as a stock not worth researching with its 10x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Hunan Kaimeite Gases

How Hunan Kaimeite Gases Has Been Performing

Hunan Kaimeite Gases 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. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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.

How Is Hunan Kaimeite Gases' Revenue Growth Trending?

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 20% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.8% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 57% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Hunan Kaimeite Gases' 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.

The Bottom Line On Hunan Kaimeite Gases' P/S

The strong share price surge has lead to Hunan Kaimeite Gases' P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Hunan Kaimeite Gases with six simple checks will allow you to discover any risks that could be an issue.

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.