Jiangsu Shuangxing Color Plastic New Materials Co., Ltd. (SZSE:002585) Stock's 25% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Jiangsu Shuangxing Color Plastic New Materials Co., Ltd. (SZSE:002585) shares have had a horrible month, losing 25% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Since its price has dipped substantially, Jiangsu Shuangxing Color Plastic New Materials may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Packaging industry in China have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jiangsu Shuangxing Color Plastic New Materials

What Does Jiangsu Shuangxing Color Plastic New Materials' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Jiangsu Shuangxing Color Plastic New Materials has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Jiangsu Shuangxing Color Plastic New Materials will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Jiangsu Shuangxing Color Plastic New Materials' 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 10%. However, this wasn't enough as the latest three year period has seen an unpleasant 2.1% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the two analysts following the company. That's shaping up to be similar to the 15% growth forecast for the broader industry.

With this information, we find it odd that Jiangsu Shuangxing Color Plastic New Materials is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

The southerly movements of Jiangsu Shuangxing Color Plastic New Materials' shares means its P/S is now sitting at a pretty low level. 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.

It looks to us like the P/S figures for Jiangsu Shuangxing Color Plastic New Materials remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Having said that, be aware Jiangsu Shuangxing Color Plastic New Materials is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Jiangsu Shuangxing Color Plastic New Materials, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.