Market Participants Recognise Hunan Kaimeite Gases Co., Ltd.'s (SZSE:002549) Revenues Pushing Shares 29% Higher

Hunan Kaimeite Gases Co., Ltd. (SZSE:002549) shares have continued their recent momentum with a 29% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

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 10.5x 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.

View our latest analysis for Hunan Kaimeite Gases

What Does Hunan Kaimeite Gases' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Hunan Kaimeite Gases' revenue has gone into reverse gear, which is not great. 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 Hunan Kaimeite Gases will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hunan Kaimeite Gases' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. This means it has also seen a slide in revenue over the longer-term as revenue is down 7.8% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 57% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we can see why Hunan Kaimeite Gases is trading at such a high P/S compared to the industry. 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

Shares in Hunan Kaimeite Gases have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Hunan Kaimeite Gases' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Hunan Kaimeite Gases with six simple checks on some of these key factors.

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).

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.